FxWirePro: Can AUD/USD hammer and dragonfly doji patterns counter back after breach below trend-line and neckline support? Trade ATM calls and short hedge

AUDUSD forms shooting star on weekly plotting that evidence the slumps below 7SMA again.

On the contrary, the pair forms dragonfly doji and hammer patterns at 0.7440, 0.7402 and 0.7428 levels, while both RSI and stochastic curves have constantly been showing downward convergence to signal bearish momentum.

But the above-stated bullish patterns candle are struggling to produce any considerable rallies as both leading and lagging oscillators are on the bearish favour.

For now, the hanging man and potential shooting pop-up at peaks of rallies at 0.7423 and 0.7427 levels on 4H plotting. As the current price spike above SMAs, more rallies seem to be on cards upto the next stiff resistance at 0.7345 levels as both momentum oscillators and trend indicators signal healthy bullish momentum and uptrend continuation on this timeframe.

The Aussie has been one of the worst performers in the broad-based US dollar rally since the June FOMC and ECB meetings.

Australia’s key commodity prices have been broadly resilient; especially LNG and thermal coal, suggesting AUD downside should be contained multi-month. The RBA should also be optimistic about Australia’s growth outlook in its Aug statement. We look for 0.75 in near terms. 

On a broader perspective, the pair has been going through consolidation phase after a massive downtrend, bears have managed to break-out uptrend-line support, the major trend goes non-directional (refer monthly plotting), it is now below our weekly fair value estimate for the first time this year. If US-China trade tensions remain the market focus in coming weeks, risks are to 0.72/0.73 mark.

Trade tips: Well, on trading perspective, at spot reference: 0.7427 levels, it is advisable to buy at-the-money vanilla call option of 1w expiries, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps spiking higher 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 0.72 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 116 levels (which is bullish), while hourly USD spot index was at -51 (bearish) while articulating (at 07:34 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex