Current trading setup indicating that subdued move is expected and the currency pair is likely to trade in narrow range.
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Pullback rally in USD/INR continued in the week gone by and the currency pair closed with the weekly gain of 0.29 paisa. Bulls continued having an upper hand throughout the week, but indecisive candle on the last trading day suggested that road ahead for the bulls seems to be skeptical.
The currency pair has shown a sharp “V” shaped recovery from lower levels which is unlikely to hold. The absence of base building indicates current volatility which is likely to cool off in coming trading sessions and sideways movement could be seen in a narrow range. The short term and medium term moving averages are trading with absolute flat curve, indicating the absence of bullish or bearish trend.
Bearish engulfing pattern on weekly chart reflecting the limited strength of bulls and we could expect the subdued range bound movement in coming weeks. Daily RSI is trading in a neutral zone, suggesting that traders need to wait for the proper setup as this sideways move will lay the foundation for next trending move.
Declining crude oil prices was one of the major supporting factor in the pullback of currency pair but now, when WTI Crude is trading in highly oversold zone and near the important support level any pull back could hamper the bullish sentiments of USD/INR.
Current trading setup indicating that subdued move is expected and the currency pair is likely to trade in narrow range. However, there are chances of break out on either side hence trading strategy should involve proper risk control. We believe theta depreciating “Iron Condor” would be an apt choice to play the current setup where OTM call and put option can be sold and simultaneously deep OTM call and put option can be bought to cap the risk. However, we are adopting a slightly bearish bias and writing an ATM call option and OTM put optionSELL 71.25 PE AT 0.0525
SELL 71.50 CE AT 0.1350
BUY 71.75 CE AT 0.0575
BUY 71.00 PE AT 0.0150
Strategy would enable the traders to gain the premium of 0.115 with limited risk on either side.
Note: Option prices derived on closing basis as on 27th January 2020 of 31st Jan contract
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