FxWirePro: AUD/USD Doji Coupled With OB Pressures And Double Top Resume Major Trend – Trading & Hedging Setup

Technical chart and candlestick patterns: AUDUSD short-term trend travels in a descending channel. 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 channel resistance. But the interim bulls have shrugged-off and broken-out the channel resistance successful. We raised our dubious on the sustenance, for now, failure swings are observed at the stiff resistance of 0.7031 levels (refer daily chart). In addition, long-legged doji has occurred at 0.7024 level to signal the weakness (4H chart).

As stated before, the pair has now shown the exhaustiveness in the interim upswings, as a result, prices are plunged back sooner or later. 

As both leading oscillators (daily RSI & Stochastic curves) show the overbought pressures to the prevailing resistance signal the fading strength in the previous minor upswings and intensified bearish momentum, 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: 0.6901 levels, contemplating above technical rationale, it is advisable to execute tunnel options strategy with upper strikes at 0.6942 and lower strikes at 0.6860 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, we uphold the same strategy as the underlying spot FX likely to target southwards below 0.67 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.