The Australian dollar often used as a proxy for Chinese risk which has fallen 20 ticks before recovering to trade at 1.2730.The HSBC Purchasing Managers’ Index (PMI) showed factory activity in China contracted at its fastest rate in a year in April as demand faltered and deflationary pressures persisted. Where bond markets were quite attractive for investors after a sharp and abrupt rise in developed market yields last week led by the Euro zone which suggested the long bull run in bonds might finally have run out of steam. In the US, a recent bounce in commodity prices and caution ahead of the US jobs report has prompted some investors to reduce their holdings.AUD remained on the defensive at $1.2753 amid speculation the Reserve Bank of Australia (RBA) will cut interest rates to a fresh record low of 2.0 per cent at a policy meeting on Tuesday.Asian stocks bounced from their lows on Monday and the Australian dollar pared early losses as weak China factory activity reinforced views that Beijing will roll out fresh support measures soon for the world’s second-largest economy.Technical Watch:On a daily chart of USD AUD a shooting star pattern candle occurred during uptrend rally which is a top reversal line. We could foresee this as an early signal of top reversal. We sense the risks are skewed heavily to the upside and expect higher yields over the course of the year against a more positive economic backdrop in the US and Europe. AUD should experience corrective gains in near term in order to factor in all above news on price curve. This call is for intraday or for BTST or STBT purpose only as data release season is on its way.Derivatives basket:Strategy: Bull Call Spread (AUD/USD)We recommend taking as many long positions in futures of AUD as this pair probable to show handsome gains.Or Buying a Call and selling another Call with a higher strike price with the same expiration date for a net premium payable establishes this strategy (BCS). Use this strategy over a long call when the costs of the long options are expensive and the underlying currency is expected to move somewhat higher. Credit from short call reduces the cost of long call.
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