FxWirePro: AUD/USD Bears Back In Sloping Channel On Breakdown Below Double Top Neckline With Stern Engulfing – Trading & Hedging Setup

Technical chart and candlestick patterns: AUDUSD short-term trend formed a descending channel (refer daily chart). We traced shooting stars and spinning top patterns in our recent post, that have popped up at 0.6893 and 0.6884 levels respectively to signal weakness at the pivot point. The pair has shown the exhaustiveness in the interim upswings at that juncture (at 0.7030 levels), as a result, prices plunged back in the channel again. The rallies are restrained at the stiff resistance levels of 0.7030 levels.

As both leading oscillators (RSI & Stochastic curves) show downward convergence to the prevailing price slumps to signal the selling strength in the previous minor downtrend, more slumps likely upon failure swings. 

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. 

The major trend attempts to bounce back but 21-EMA caps upswings, every attempts of upswings are restrained below 7 & 21-EMA levels. The major downtrend remains intact as both lagging indicators bearish bias.

Fundamentally, the outlook for China and its trade conflict with the US remain important drivers for the Aussie dollar. A more relaxed situation on the trade war front, improved risk sentiment, and the more confident stance of the central bank have helped the currency to gain back ground. However, we expect AUDUSD to generally drift in sideways to bearish swings as the macro risks remain intact. Hence, it is wise to stay hedged using below strategy.

Trade tips: On trading perspective, at spot reference: 0.6682 levels, contemplating above technical rationale, it is advisable to execute tunnel options strategy with upper strikes at 0.6719 and lower strikes at 0.6650 levels, thereby, one can fetch certain yields as long as the underlying spot FX keeps dipping but remain above lower strikes on the expiration.

Alternatively, on hedging grounds we advocated shorting futures contracts of mid-month tenors ahead of RBA, we wish to uphold the same strategy as the underlying spot FX likely to target southwards below 0.65 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.