FxWirePro: RSI Divergence and Back-To-Back Bearish Patterns Drag EUR/AUD trend Back in Range – Trade Tunnel Spreads and Directional Hedges

Technical Chart and Candlestick Patterns: EURAUD plummets prices below 7DMAs ever since the failure swings were observed at the trendline resistance, while hanging man and gravestone doji patterns popped-up at that juncture (at 1.6565 and 1.6568 levels respectively). 

Bulls attempt to counter testing support at 1.6049 level with hammer formation, but bears shrug-off this bullish pattern as technical indicators are bearish bias (refer daily plotting).

Both RSI and fast stochastic curves are showing downward convergence to indicate selling momentum on this timeframe. 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, bears fall back in range after back-to-back shooting star and hanging man patterns.

Overall, the recent months’ rallies now seem to be exhausted but the major trend is still stuck in the range with lingering bearish biasness. RSI shows bearish divergence coupled with overbought pressures signaled by stochastic curves.

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: 1.6074 levels, contemplating above technical rationale, we advocate tunnel options spreads using upper strikes at 1.6095 and lower strikes at 1.6049 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX remains above lower strike on the expiration.

Alternatively, on hedging grounds, we advocated directional hedging strategy as European central bank is lined up for monetary policy meeting on 12th September, 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 Sept’19 delivery as further downside risks are foreseen and simultaneously, longs in futures of Oct’19 delivery for the major uptrend. 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.