FxWirePro: AUD/USD Staged For 1M-Highs But 100-DMA & 7-EMAs Likely To Cap – Trading & Hedging Setup

AUDUSD short-term trend: The pair has formed shooting star pattern at peaks of rallies at 0.6526 levels (refer intraday chart, 4H). Consequently, bears appear to be resuming in the minor downtrend upon this bearish formation coupled with the overbought momentum after brief rallies. The current price is still well above DMAs, downtrend is likely only breakdown below DMAs.

The medium term perspectives: Although interim bulls are on the verge of establishing 1m highs, extension of rallies seems to be dubious as 7 & 21-EMAs has been restraining every attempts of upswings in the past months, while bears drag price slumps on the breakdown below double top neckline (refer monthly chart). 

Both RSI & stochastic curves show downward convergence to the current downswings to indicate the intensified selling momentum. To substantiate this bearish stance, bearish EMA & MACD crossovers indicate the downswings to prolong further.

As a result, the major downtrend remains intact as both leading & lagging indicators are bearish bias on this timeframe as well.

The Aussie dollar, as a proxy for the global risk sentiment, and also for China’s growth outlook amid contagious coronavirus outbreak, will continue to remain under downward pressure. The next major technical support level is 0.5800 (2002 peak). 

Trade tips: On trading perspective, contemplating above technical rationale, at spot reference: 0.6526 levels (while articulating), it is advisable to execute tunnel options strategy with upper strikes at 0.6547 and lower strikes at 0.6480 levels, thereby, one can fetch certain yields as long as the underlying spot FX keeps dipping but remain above lower strikes on the expiration.

Alternatively, we advocated shorting futures contracts on hedging grounds, we wish to roll-over the same strategy with May-month deliveries as the underlying spot FX likely to target southwards below 0.60 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.