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FxWirePro: Descending Channel and Double Top Patterns Threaten AUD/USD’s Interim Rallies – Trade Tunnel Spread and Uphold Short Hedge

Technical chart and candlestick patterns: AUDUSD minor trend has been observed in sloping channel pattern (refer daily chart). The pair has recently tested channel support and bounced back from there but restrained below stiff resistance of 0.6812 levels. 

The interim upswings appear to be exhausted at that juncture as both the leading oscillators (RSI & Stochastic curves) signal overbought pressures and faded strength, so, more slumps are expected to be on the cards only on the failure swings below 0.6812 levels. 

On a broader perspective, the double top formation with breach below neckline has been extending the major downtrend of this pair and hit 10 year lows at 0.6675 areas (refer monthly plotting), in the recent past, bearish engulfing candles followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. 

Overall, both sloping channel and double top patterns are threatening the prospects of AUDUSD upswings. In addition, every attempts of upswings are restrained below 21-EMA levels. The major downtrend remains intact as both lagging indicators bearish bias.

Trade tips: On trading perspective, at spot reference: 0.6795 levels, contemplating above technical rationale, it is advisable to execute tunnel spread options strategy with upper strikes at 0.6825 and lower strikes at 0.6750 levels, by that we mean the strategy fetches certain yields as long as the underlying spot FX keeps dipping but remains above lower strikes on the expiration.

Alternatively, on the hedging grounds we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.66 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.

By Niranjan Patil
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