FxWirePro: Buzzing AUD bulls on hammer formation, 21-DMA is where RSI signals faded strength, short hedge as major downtrend remains intact

AUDUSD forms hanging man and hammer patterns at 0.7428 and 0.7238 levels respectively and the stiff resistance at 0.7369 (21DMA) and 0.7454 levels and strong support at 0.7315 areas are observed.

Hanging man at stiff resistance plummets prices below DMAs, while hammer counters with the stern bounce back, prevailing rallies are backed by momentum indicators and rising volumes (refer daily chart).

Whereas the major downtrend has been extending double top formation with breach below neckline and head towards 1 and a half year lows again (refer monthly plotting), bearish engulfing candle followed by shooting star patterns plummet prices below 7EMA again on this timeframe. In this journey, the pair shrugs off hammer pattern candle as bears extend price slumps.

While both RSI and stochastic curves have constantly been showing downward convergence to signal bearish momentum on monthly terms and bullish strength in the minor trend on daily terms. While we see bearish EMA crossover with rising volumes with dipping prices, this indicates downtrend to prolong further.

Trade tips: On trading perspective, at spot reference: 0.7353 levels, contemplating stiff resistance at 21DMA levels with prevailing bullish sentiments, it is advisable to buy boundary options of 1w expiries with upper strikes at 0.7372 and lower strikes at 0.7333 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX remains between these strikes on the expiration.

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 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 40 levels which is bullish, while hourly USD spot index was at -79 (bearish) while articulating (at 07:10 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex