FxWirePro: EUR/AUD channel line breakout signifies further dips – backspread mitigates downside risks

The breakout of channel line support at around 1.5917 levels previous to which it has formed spinning top as well but inching towards little upwards slowly, while weekly leading oscillators puzzle by signaling bearish trend as they are converging downwards to the dropping prices. We foresee our next targets at 1.5541 levels in short run.

RSI curve is currently trending at 47.5199 and %D line crossover consistently maintaining above 20 level (current %D is at around 31.2632 and %K is at 21.0818) on daily charts. Prices have fallen well below moving average curve as well, so we believe with all these bearish indications, the pair to either remain stagnant or drag towards 1.5541 levels if at all it has to bounce back again.

Our earlier recommendation has perfectly working out with 2 lots of 15D longs on ITM puts should be on the job with dips which we've been seeing from last 2 weeks in arrow form the highs of 1.6249 levels, previous to which put writers must have been happy with this pair because on 21^st September we advised OTM shorts with 4 day expiry which must have definitely booked profits as the price moved above .

EURAUD is currently trading at 1.5747, from here onwards we continue to stay firm with our 2 lots of 15D longs on ITM strike vega puts would start maximizing profits considering the current short term downtrend. Vega in a back spread is generally dominated by the long options the more time there is to expiration and the closer EURAUD is to the strike price of the long options.

15 days of expiration on longs sets up generally the more positive vega the back spread. The reason for this is that far from expiration, the difference between the vega of one strike and the next is relatively small. This is an income strategy. You are looking for a net credit if the pair stays within a range or rises.