FxWirePro: AUD/NZD back-to-back shooting star likely to form head and shoulder pattern – Trade boundary strikes and short hedge

Chart and candlestick patterns formed: Back-to-back shooting stars on weekly plotting and hammer and shooting star patterns on daily plotting have occurred.

Hammer pattern at  1.0688 levels that takes off rallies but gravestone doji at 1.0737 levels hampers the previous bullish momentum, while the current prices restrained below 21DMAs.  Both leading oscillators have been indecisive but slightly bearish bias.

Shooting stars have occurred at 1.0851 and at 1.0907 levels (on weekly terms) that plummets the prices below EMAs.

If bears drag slumps, then the potential head and shoulder pattern is most likely,  Major consolidation phase stuck in the range, both leading oscillators indicate faded strength.

Overall, as stated before the extension of the major downtrend is quite viable at this juncture, even if you witness any abrupt upswings, that shouldn’t be deemed as panicky buying sentiment.

To substantiate this bearish stance, both leading (RSI & stochastic curves) and lagging indicators (EMA & MACD) indicate the downtrend to prolong further.

At spot reference: 1.0750 levels, boundary options strategy is advocated for the intraday speculative trades, use upper strikes at 1.0779 and lower strikes at 1.0730 levels.

The trading between these strikes likely to derive certain yields in this perplexed trend in the short term, more importantly, these yields are exponential from spot movements.

For cash or nothing, these options would be exercised if the forward prices to remain between both strikes (i.e. 1.0779 > Fwd price > 1.0730).

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards 1.0650 levels in the medium run.

Writers in a 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 flashing at 28 levels (which is bullish), while hourly NZD spot index was at shy above 52 (bullish) while articulating (at 05:53 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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