AUD futures: Don’t trust the bullish outside day candle

The preliminary AUD futures data for July 7 published by the CME shows a drop in the Open Interest by 1547 contracts, which indicates the bullish move in the AUD/USD pair was largely due to withdrawal of liquidity/unwinding of shorts following a repeated failure to cut through support around 0.7570 levels.

AUD/USD daily chart shows Friday’s candle was a bullish outside day formation, which indicates the sell-off from the recent high of 0.7712 may have run out of steam. However, the drop in the Open Interest warrants caution.

Options activity signals buyers are buying cheap insurance against downside move

The Open Interest (OI) in the Out-of-the-Money (OTM) puts rose by 1620 contacts as opposed to 1058 additions in the (OTM) calls. Meanwhile, OI in In-the-Money (ITM) calls fell by 24 contracts, while the OI in the ITM puts witnessed an addition of 90 contacts.

This adds credence to the drop in the futures OI and suggests the traders are buying cheap insurance against a potential drop in the AUD/USD pair.