FxWirePro: EUR/AUD minor downtrend plunges on shooting star, major trend tests channel support – Trade tunnel spread, uphold directional hedge

Technical Chart and Candlestick Patterns: EURAUD shooting star at 1.6160 level has plummeted the prices below DMAs. If you observe the highs of that candle (1.6233 i.e.21-DMA), the steep slumps have been observed after the failure swings at this stiff resistance levels (refer daily plotting).

The occurrence of shooting star at 1.6160 levels coupled with bearish DMA and MACD crossovers plummets prices below DMAs, while the bulls attempt to counter from yesterday, but all technical indicators bearish bias.

Both RSI and fast stochastic curves are showing downward convergence to indicate selling momentum. For now, more slumps are likely on bearish DMA and MACD crossovers.

On a broader perspective, the major trend has been spiking through uptrend (refer monthly chart). But the overbought and selling pressures are intensified in the major trend signaled by both leading oscillators on this timeframe, can bears breach below channel support?

Overall, the recent months’ rallies are exhausted and bears resume but the major trend is still stuck in the range with lingering bearish biasness. Hence, the previous upswing seems unlikely to prolong as both leading and lagging indicators are indicating the prevailing bearish sentiments (refer monthly chart).

Trade tips: On trading perspective, at spot reference: 1.5937 levels, contemplating above technical rationale, we advocate tunnel options spread using upper strikes at 1.5960 and lower strikes at 1.5890 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 European central bank is lined up for monetary policy meeting on 25thJuly, following the ECB’s surprisingly dovish message in the recent past, we see 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 Aug’19 delivery as further downside risks are foreseen and simultaneously, longs in futures of Sept’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.