FxWirePro: AUD/USD gap down opening breaches crucial supports, major downtrend extends 4-month lows on RBA’s rate cut hopes

Technical chart and candlestick patterns: AUDUSD bears nudge prices below DMAs after the gap down opening today at 06968 levels. Attempts of recovery for today are not backed by technical indicators. 

For now, more slumps seem to be likely upon breach below strong support areas of 0.6985-0.70 levels, while both leading and lagging indicators substantiate the bearish sentiments(refer daily plotting).

We have already emphasized the further bearish potential and the suitable strategies ever since the failure swings observed at 0.7206 level, that is where hanging man and spinning top occurred at 0.7173 and 0.7178 levels respectively.

In addition to that, these bearish patterns are coupled with a broader perspective: The major trend of this pair has been extending double top formation with breach below neckline and may head towards 3 year lows (feb’2016 lows, refer monthly plotting), bearish engulfing candle followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. Attempts of upswings are restrained below 21-EMA levels.

Both RSI and stochastic curves have signaled faded strength and intensified bearish momentum as these leading oscillators show downward convergence to the prevailing price dips on both timeframes.

While bearish MACD, DMA and EMA crossovers substantiate the bearish sentiments and indicate downtrend to prolong further.

Trade tips: On trading perspective, at spot reference: 0.6977 levels, contemplating above technical rationale, it is advisable to execute one touch put options strategy with lower strikes at 0.6914 levels, thereby, one can achieve certain yields as long as the underlying spot FX keeps dipping on the expiration.

Alternatively, on hedging grounds ahead of RBA’s monetary policy that is scheduled for next week, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.69 levels in the medium run. 

The general consensus is that Australian central banker is expected to cut rates by 25 bps in this monetary policy. Hence, writers of futures contract are expected to maintain margins in order to open and maintain a short futures position.

Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards -138 levels (which is highly bearish), while hourly USD spot index was at -85 (bearish), while articulating (at 04:42 GMT). These indices are also conducive for the above short set-up.

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex