AUD/USD Chartpack - Technicals, Trading & Hedging Setup

Technical chart and candlestick patterns: The sloping channel pattern has continued for AUDUSD minor trend (refer daily chart). The pair has recently tested channel support and bounced back from there but restrained below stiff resistance of 0.6880 – 0.69 levels. The pair has bounced back at 0.6670 levels (i.e. 10 and half years).

The interim upswings appear to be exhausted at that juncture as both the leading oscillators (RSI & Stochastic curves) signal the overbought pressures and faded strength at 64-65 levels, so, more slumps are expected to be on the cards only on the failure swings below 0.69 levels.

On a broader perspective, the double top formation with breach below neckline has been extending the major downtrend of this pair and hit 10 and a half years lows at 0.6670 areas (refer monthly plotting).

In the recent past, bearish engulfing candles followed by shooting star candles form double top pattern and plummet prices well below 7EMA on this timeframe. 

Overall, both sloping channel and double top patterns are threatening the prospects of AUDUSD upswings. In addition, every attempt of upswings are restrained below 7 & 21-EMAs. The major downtrend remains intact as both leading and lagging indicators, on this timeframe are bearish bias.

Trade tips: On trading perspective, at spot reference: 0.6874 levels, contemplating above technical rationale, it is advisable to execute tunnel spread options strategy with upper strikes at 0.69 and lower strikes at 0.6795 levels, by that we mean the strategy fetches certain yields as long as the underlying spot FX keeps dipping but remains above lower strikes on the expiration.

Alternatively, on the hedging grounds, ahead of Fed’s monetary policy that is scheduled for this week, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.6650 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.