FxWirePro: AUD/JPY hammer goes vulnerable over bearish engulfing – Trade with attractive risk/reward ratio and short hedge

The Aussie dollar hasn’t changed much on either side (upside or downside) follower by RBA’s rate cut of 25 bps today which was widely anticipated, hence, we could foresee further weakness in AUD.

Technically, AUDJPY’s hammer deceives as it was analyzed in our previous post, RSI in conjunction with trend indicators reaffirm the major downtrend.

AUDJPY drags price dips are going in a narrow range today, down about -0.12% as the weakness is not only due to RBA but also the lingering trade-war tensions between US-China.

As emphasized in our previous post, the bears of this pair have disregarded hammer pattern traced at the strong support, the strong supports are observed at 77.468 levels, there has been considerable follow-through from thereon.

The stern bearish engulfing and last month’s bearish candle with big real body occurred at 77.254 and 75.094 levels respectively plummet prices way below 7 & 21-EMAs.

As a result, one can make out that the major downtrend has been more imminent, while stochastic remain indecisive, whereas RSI and both trend indicators (bearish EMA & MACD crossovers) signal renewed weakness (refer monthly chart).

The stimulated bears, in the minor trend, extend on the gap-down pattern at 77.082 levels (refer daily plotting) with the decisive breach of strong support as both leading and lagging oscillators on this timeframe as well, signal extreme weakness.

For now, more slumps appears to be on the cards as current price remains well below DMAs.

Well, any abrupt rallies should be capped by the ongoing debate over RBA  further rate cuts in upcoming monetary policies and nerves over US-China trade relations, with probes of 72.007 areas are quite possible in the weeks to come.

Trade tips: At spot reference: 75.342 levels, contemplating above technical rationale, short deceptive rallies for the intraday targets of 74.967 levels, maintain 75.556 levels, thereby, attractive risk/reward ratio is attained.

Alternatively, one can also execute one touch put options strategy. Such exotic option with lower strikes at 74.967 levels favoring prevailing selling sentiments.

On hedging grounds, shorting futures of mid-month tenors are advocated with a view of arresting further potential slumps. 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 was at 0.8 (absolutely neutral), hourly JPY is at 127 (which is highly bearish) while articulating (at 06:03 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex