FxWirePro: Shooting star on AUD/USD – BPS for hedging

On daily charts, shooting star patterns are found on rallies at peaks. The pair began showing the importance of shooting star occurred at 0.7182 levels by dropping its prices, despite serious doji patterns have occurred on daily charts last week at 0.7140 and 0.7012 levels and the short term uptrend looks like exhausted as RSI (14) today began diverging with price dips. While an attempt of %D crossover above 80 levels signifies oversold scenes on slow stochastic. But on weekly charts, even though buying sentiments are seen as both oscillators showing positive convergence in oversold trajectories and signaling price recoveries, these sentiments were not able to sustain. Overall, the major trend has been downtrend and initiate the below trade recommendations.

As you can make out from the diagram AUDUSD still maintains the highest implied volatility of 1W at the money contracts among G20 currency pool, almost at 13%. As a reminder, this higher IV represents how much movement today's FX market expects from AUDUSD during US sessions and the life span of the option. In that respect, an option buyer is partially buying the market's expectations for this pair.

However, on a long term hedging perspective, debit put spreads are advocated as the selling indications are piling up on daily graph.

Hence, we recommend buying 1W 1% in the money puts and -1% out of the money put option of similar expiries. So buying In-The-Money Puts and to reduce the cost of hedging by financing this long position, selling an Out-Of-The-Money put option is recommended.