Before moving forward, we believe that traders must look into current behaviour of medium term and short term exponential moving averages which are trading absolutely flat at this juncture
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Sharp recovery was witnessed in USD/INR from the support level of 70.36 in the week gone by. As we have mentioned in the previous week, bulls need to consider the low of signal candle (70.36) very closely and expect further downside only once the level gets traded on lower side.
The demand from lower levels has pushed the currency pair back in the new trading range which is forming between 70.36 and 71.40.
Last week, after a decent correction there was formation of 'piercing line' pattern on the daily chart near the support level which resulted in the three days of continuous upmove and prices propelled till the level of 71.36.
Though it was only a pullback move and bulls were not strong enough to hold onto the gains.
The upwards momentum fizzled out at higher levels and resulted in the formation of 'Shooting Star' and 'Bearish Engulfing' candlestick pattern.
In simple terms, it suggests bulls have booked their profit at higher levels leaving the currency pair back to trade in a sideways zone.
USD/INR SPOT DAILY
Before moving forward, we believe that traders must look into current behaviour of medium term and short term exponential moving averages which are trading absolutely flat at this juncture.
The currency pair locked within the cluster of important averages, giving an indication that bulls and bears are in the state of dilemma and we could see the prices to go sideways for a few days.
RSI on the daily chart trading in sideways zone and taking the latest swing move into consideration as per Fibonacci retracement, the prices has retraced till the level of 50 percent in latest upmove and also taken the resistance of declining trend line. The scenario suggests that upside in the currency pair is capped until it gets the closing above 71.40.
On the contrary, 70.36 are likely to act as a short term support in the coming days.
Apart from this, the slide till 70.10 and 69.8 can be seen only if the support level gets traded on lower side as there is a gap intact on the chart.
Though, the chances are quite low as recent cut in interest rates by the Reserve Bank of India (RBI) and huge downward revision in GDP growth projections from 6.9 percent to 6.1 percent.
Both could act as a major hindrance in appreciation of Indian Rupee. However, better than expected Forex data may give some support to it.
Being a truncated week traders should opt for strategy which involve Theta decay. Sell 11th October call option of 71.5 strike price at 0.0625 and put option of 70.5 strike price at 0.0675.
Note: Option prices as on October 4, 2019 closing.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.