FxWirePro: EUR/USD Hammer Gives Momentary Relief For Bulls, Major Downtrend Develops Sloping Channel – Trading & Hedging Setup

EURUSD has attempted a recovery rally as hammer pattern candle pops-up at the bottom, consequently, bulls bounce back above DMAs with bullish crossover. 

The momentum studies remain in bull mode as both the leading oscillators (RSI & stochastic curves) show upward convergence to the prevailing rallies.

But so far we have failed to break through the 1.0845 - 1.0915 resistance region. The longer that holds, the greater the risk of renewed weakness. A clear break though should see a further recovery within the broad 1.0635 to 1.1165 range. Back through 1.0790-1.0760 support would return a more negative bias again for a move down to test 1.0635-1.0580 important support below.

On a broader perspective, the major downtrend has been extending below 61.8% Fibonacci levels (monthly chart), both leading & lagging oscillators in line with price slumps.

Overall, we are still looking for evidence that 1.0635 was a medium-term low for a recovery back towards 1.14-1.15 region. A clear break of 1.0635-1.0590 negates that thought and suggests a more direct move down towards the 2017 lows in the 1.0340 region.

Accordingly, when this was trading at 1.0904 level, we advocated short hedges for EURUSD about a month and a fortnight ago, we now continue to uphold the strategy on hedging grounds.

The Strategy: At spot reference: 1.0882 levels (while articulating), although we could see some ongoing rallies for today that seems momentary, contemplating above technical rationale, one can execute boundary options strategy. Such exotic option with upper strikes at 1.0930 and lower strikes at 1.0815 levels likely to fetch exponential yields than the spot moves.

Alternatively, we recommended shorts in EURUSD futures of May’20 delivery for the major downtrend. Ahead of ECB and Fed’s monetary policies that are scheduled for this week, we now wish to uphold these positions on hedging sentiments.