AUD/USD short setup as bears extend head and shoulder | March 1, 2019

AUD/USD short setup as bears extend head and shoulder in minor trend, double top pattern in major trend:

Technical chart and candlestick patterns: AUDUSD’s recent downswings have formed head and shoulder pattern in the minor trend, with the head at 0.7295, shoulder 1 at 0.7235 and shoulder 2 at 0.7206 levels (refer daily plotting).

The trend, for now, is extending head & shoulder pattern, the current prices go well below DMAs, all technical indicators are in bearish favor. Bears are most likely to extend downswings up to next support at 0.7057 levels.

In addition to that, back-to-back  shooting star , gravestone doji and hanging man patterns are traced out at 0.7182, 0.7182, and 0.7188 levels respectively, these bearish candles patterns are followed by 3-black crow patterns finished at 0.7133 levels (refer 4H plotting). All these bearish patterns have signaled weakness of this pair.

Both leading oscillators ( RSI & Stochastic curves) show downward convergence with the price dips that signal intensified bearish momentum.

AUDUSD on a broader perspective: The major trend has been extending double top formation with a breach below the neckline and likely to 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. Attempts of upswings are restrained below 21-EMA levels.

Both RSI and stochastic curves have signaled shrinking bearish momentum.

Trade tips: On trading perspective, at spot reference: 0.7091 levels, capitalizing abrupt upswings, it is advisable to execute tunnel spread strategy with upper striking options at 0.7127 and lower short lower strikes at 0.7057 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 -121 levels (which is bearish ), while hourly USD spot index was at 35 ( bullish ) while articulating (at 06:17 GMT ).