FxWirePro: AUD/USD Dragonfly doji and hammer vulnerable lacking momentum, bears nudge below 21-DMAs – Trade tunnel spreads and short hedge

AUDUSD forms long-legged doji and hammer patterns have occurred at 0.7442 and 0.7402 levels respectively that evidence the slumps below 7EMA again (on weekly charts), shooting star has appeared at 0.7402 levels (refer 4H charts).

On this timeframe, the failure swings are observed at the stiff resistance of 0.7412-45 levels, while Shooting star & Gravestone doji evidences price slumps below 21SMA, for now, further dips seem to be more likely as momentum signal overbought pressures, both RSI and stochastic curves have hampered previous bullish momentum.

While on intermediate trend, Extension of the double top formation with the breach below the neckline, Shooting star plummets prices below 7EMA again, Bears shrug-off dragonfly doji as bears extend price slumps.

The medium-term perspectives: The Aussie has been one of the worst performers in the broad-based US dollar rally since the June FOMC and ECB meetings.

It is now below our weekly fair value estimate for the first time this year. If US-China trade tensions remain the market focus in coming weeks, risks are to 0.72/0.73.

But Australia’s key commodity prices have been broadly resilient, especially LNG and thermal coal, suggesting AUD downside should be contained multi-month. The RBA should also be optimistic about Australia’s growth outlook in its Aug statement. We look for 0.75 end-Sep. 

On a broader perspective, the pair has been going through consolidation phase after a massive downtrend, bears have managed to break-out uptrend-line support, the major trend goes non-directional (refer monthly plotting).

Trade tips: Well, on trading perspective, at spot reference: 0.7375 levels, it is advisable to tunnel spreads using upper strikes at 0.74 and lower strikes at 0.7345 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping below but remains within these strikes on or before the binary expiry duration.

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards 0.72 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 inching towards -63 levels (which is bearish), while hourly USD spot index was at -66 (bearish) while articulating (at 06:06 GMT). For more details on the index, please refer below weblink:

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

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