FxWirePro: EUR/AUD gravestone doji and hanging man plummet prices below 7-DMAs – Directional hedges as major trend likely to fall back in range

Technical Chart and Candlestick Patterns: Hanging man and Gravestone doji pattern candles have occurred in EURAUD minor trend at 1.6565 and 1.6568 levels respectively. Please be noted that ever since then prices have slide below 7-DMAs after the failure swings at the stiff trendline resistance areas of 1.6760-80 levels (refer daily plotting).

The occurrence of bearish patterns (as shown above) has generated renewed bearish sentiments especially 7-DMAs, while bulls attempt to counter from the last 2-3 days testing supports at 21-DMAs, but all technical indicators are bearish bias.

Both RSI and fast stochastic curves show downward convergence that is signalling the intensified selling momentum.

In addition, more slumps are foreseen as bearish MACD crossover substantiates bearish stances in the minor trend.

On a broader perspective, back-to-back shooting stars and hanging man pop-up at the peaks of major uptrend coupled with the other bearish indications (refer monthly chart).

The previous months’ rallies are exhausted and bears resume in the major trend as the leading oscillator (RSI), on this timeframe, show bearish divergence to indicate the overbought pressures. Hence, the major trend likely to slide back in range again.

Trade tips: On trading perspective, at spot reference: 1.6355 levels, contemplating above technical rationale, we advocate boundary options spreads with upper strikes at 1.6398 and lower strikes at 1.6310 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 directional hedging strategy as the European PMI data announcement is lined up for tomorrow, following the ECB’s surprisingly dovish message last week, signalling no hikes in 2019, we could foresee significantly less upside for EURAUD in the near term, the pair could probably show slumps further in the near term.

Hence, it is wise to initiating shorts in EURAUD futures contracts of Sept’19 delivery as further downside risks are foreseen and simultaneously, longs in futures of Dec’19 delivery for the major downtrend. Thereby, one can directionally position in their FX exposures. The directional implementation of the same trading theme by further allow for a correlation-induced discount in the options trading also if you choose strikes appropriately.