AUD/USD Chartpack - Technicals & Trade Setup | December 12, 2018

AUD/USD frequent occurrence of shooting stars coupled with double top intensifies major downtrend – Uphold short hedge:

AUDUSD  minor trend slides through sloping channel. Although bulls of this pair are attempting to bounce back, failure swings are observed exactly at 7DMAs. Shooting star has occurred at 0.7337, 0.7256, 0.7197 and 0.7254 levels (refer daily plotting).

As a result, the current trend now seems to be edgy on the above-stated bearish formations at stiff resistance zone amid momentary bullish attempts to bounce back but ongoing rallies are not in conformity to the technical indicators, failure swings are most likely to resume downtrend on the bearish DMA & MACD crossovers.

The stiff resistance is observed at 0.7315 - 0.7385 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 on a broader perspective: 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.

Trade tips: On trading perspective, at spot reference: 0.7207 levels, capitalizing prevailing upswings, it is advisable to execute tunnel spread strategy with upper striking options at 0.7234 (i.e. 7DMAs) 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 102 levels which is bullish ), while hourly USD spot index was at 107 ( bullish ), while articulating (at 07:19 GMT ).