AUD/USD shooting star pops-up at channel resistance | November 5, 2018

AUDUSD 0.10% minor trend slides through sloping channel. Although bulls of this pair have attempted to bounce back in the last weekend, failure swings were at exactly at channel resistance. Consequently, shooting star has occurred at 0.7197 levels (refer daily plotting).

As a result, the minor trend seems little weaker on bearish pattern at stiff resistance, more rallies possible only on break-out above, while any failure swings are most likely to resume downtrend towards DMAs.

The stiff resistance at 0.7205 and 0.7315 levels and steep slumps were observed in the recent past. Needless to be surprised, even if you see mild rallies as both leading indicators ( RSI and stochastic curves) show downward convergence, on the other hand, resumption of downtrend would also not be surprised on overbought momentum.

AUDUSD 0.10% in medium term perspective: While the major trend has been extending double top formation with breach below neckline and may head towards 1 and a half year lows (refer monthly plotting), bearish engulfing candle followed by shooting star patterns plummet prices well below 7EMA again on this timeframe.

Both RSI and stochastic curves have constantly been showing downward convergence on this timeframe as well to signal bearish momentum. While we see bearish EMA and MACD crossovers with rising volumes with dipping prices, this indicates downtrend to prolong further.

As a result, if you are foreseeing more bearish potential amid continued consolidation around 0.7205 or even at 0.7315 levels as the RBA continued dovish stance in its monetary policy decision last week. Thus, any abrupt rallies should not be deemed as long opportunities.

Trade tips: On trading perspective, at spot reference: 0.7200 levels, capitalizing upswings, it is advisable to execute tunnel spread strategy with upper striking options at 0.7205 and lower short lower strikes at 0.7175 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping but remains well above lower strikes 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 below 0.70 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 41 levels which is bullish ), while hourly USD spot index was at -69 ( bearish ), while articulating (at 06:52 GMT             ).