FxWirePro: AUD/USD minor trend drops back in channel after breach below double top neckline, bears nudge below EMAs on engulfing formation

Technical glance: AUDUSD minor trend slides back into sloping channel, the current trend is edgy on shooting star formation at stiff resistance, whereas the momentary bulls attempt to bounce back but no confirmation from technical indicators, failure swings to resume downtrend on bearish DMA &MACD crossovers. Shooting stars have occurred at 0.7337, 0.7256, 0.7197 and 0.7254 levels (refer daily plotting).

As a result, the current trend now seems to be edgy on the above-stated bearish formations at stiff resistance zone amid momentary bullish attempts to bounce back but ongoing rallies are not in conformity to the technical indicators.

The stiff resistance is observed at 0.7315 - 0.7385 levels and steep slumps were observed in the recent past. Needless to be surprised, even if you see mild rallies as both leading indicators (RSI and stochastic curves) show downward convergence, on the other hand, resumption of downtrend would also not be surprised on overbought momentum.

AUDUSD on a broader perspective: The major trend has been extending double top formation with breach below neckline and may head towards more than 1 and a half year lows (refer weekly plotting), bearish engulfing candle patterns at 0.7198 level plummets prices well below EMAs. 

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 dipping prices, this indicates downtrend to prolong further.

Trade tips: On trading perspective, at spot reference: 0.7042 levels, capitalizing mild momentary upswings, it is advisable to execute tunnel spread strategy with upper striking options at 0.7072 and lower short lower strikes at 0.6978 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 0.6828 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 -134 levels which is highly bearish), while hourly USD spot index was at 37 (mildly bullish), while articulating (at 04:48 GMT). 

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