FxWirePro: AUD/USD bearish trend beams up with double top and sloping channel formations – Trade tunnel spreads and short hedge

AUDUSD price trend, on daily terms, has been sliding through sloping channel. Although bulls of this pair have attempted to bounce back in the recent past, the failure swings were observed at around channel resistance. Consequently, shooting star has occurred at 0.7254 levels (refer daily chart).

As a result, the minor trend seems little weaker on bearish pattern at stiff resistance, more slumps are possible as bears manage to breach below 7DMAs.

The stiff resistance at 0.7315 levels and steep slumps were observed in the recent past. Needless to be surprised, even if you see mild rallies, on the flip side, the resumption of downtrend would also not be surprised on overbought momentum as both leading indicators (RSI and stochastic curves) show downward convergence.

AUDUSD major trend: While the major trend has been extending double top formation with breach below neckline and may head towards 1 and a half year lows (refer monthly plotting), bearish engulfing candle followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. 

Both RSI and stochastic curves have constantly been showing downward convergence on this timeframe as well to signal bearish momentum. While we see bearish EMA and MACD crossovers with rising volumes with dipping prices, this indicates downtrend to prolong further.

As a result, more bearish potential is foreseen amid continued consolidation around 0.7205 or even at 0.7315 levels as the RBA continued dovish stance in its monetary policy decision last week. Thus, any abrupt rallies should not be deemed as the long opportunities. 

Trade tips: On trading perspective, at spot reference: 0.7205 levels, capitalizing upswings, it is advisable to execute tunnel spread strategy with upper striking options at 0.7315 and lower short lower strikes at 0.7175 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping but remains well above lower 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 0.70 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 -78 levels which is bearish), while hourly USD spot index was at 172 (bearish), while articulating (at 07:14 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex