FxWirePro: AUD/USD 21-EMA Caps Interim Rallies, Flurry of Bearish Candles Signal Weakness – Trade Boundaries and Uphold Short Hedge

Technical chart and candlestick patterns: AUDUSD minor trend has been sliding through the sloping channel (refer daily chart). The pair has tested channel support and bounced back but restrained below stiff resistance of 0.6865 levels. Back-to-back bearish candles such as shooting star, gravestone doji and hanging man patterns have occurred at this juncture (refer circular area). 

As a result, the interim upswings appear to be exhausted for now. As both leading oscillators (RSI & Stochastic curves) signal overbought pressures, more slumps likely only breach below 0.6830 levels, otherwise, the interim bounce back possible though the current price below 7-DMAs. 

On a broader perspective, the double top formation with the breach below neckline has been extending the major downtrend of this pair and hit 10-year lows at 0.6675 areas (refer monthly plotting), in the recent past, bearish engulfing candles followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. 

Bullish engulfing pattern attempts to bounce back but 21-EMA caps upswings, every attempt of upswings are restrained below 21-EMA levels. The major downtrend remains intact as both lagging indicators bearish bias.

Trade tips: On trading perspective, at spot reference: 0.6843 levels, contemplating above technical rationale, it is advisable to execute boundary options strategy with upper strikes at 0.6863 and lower strikes at 0.6820 levels, thereby, one can fetch certain yields as long as the underlying spot FX remains between these two strikes on the expiration.

Alternatively, on hedging grounds ahead of Fed’s monetary policy that is scheduled for today, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.66 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.