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FxWirePro: EUR/AUD Shooting Star & Hanging Man Coupled With Bearish DMA Crossover Stimulates Downtrend – Trading & Hedging Setup
EURAUD has been plunging below DMAs upon flurry of bearish pattern candles at the peaks.
Spinning top, Shooting star, and Hanging man patterns have occurred at 1.8608, 1.8412 and 1.8258 levels respectively (refer daily chart).
Consequently, the minor trend prolongs bearish sentiments by nudging prices constantly below DMAs.
The breach below at pivot point (1.6595 levels) with intensified bearish momentum will extend further minor downtrend. The current prices remained well below 7, 21 & 100-DMAs, every attempts of upswings restrained below 21-DMA.
While all technical indicators are bearish bias, more slumps likely upon bearish DMA (100-DMA over 21-DMA) and MACD crossover.
On a broader perspective, Overbought & selling pressures in the major trend has now signalled by the leading oscillators, as a result, bears fall back in range upon shooting star pattern (refer monthly chart).
RSI shows faded strength to plummet prices below 7-EMAs, while stochastic curves indicate overbought momentum.
Trade tips: On trading perspective, at spot reference: 1.6730 levels, contemplating above technical rationale, we advocate tunnel options spreads using upper strikes at 1.6825 (21-DMA) and lower strikes at 1.6595 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps sliding but remain above lower strike on the expiration.
Alternatively, we recommend directional hedges that comprised of shorts in EURAUD futures contracts of May’20 deliveries, simultaneously, longs in futures of June’20 delivery. The short leg is likely to hedge further potential slumps in the ongoing minor trend and the upside risks would be arrested by the long leg. Thereby, one could be able to directionally position in their FX exposures on hedging grounds.