RBI intervention curbs volatility in rupee, short-term base around 73.5-73.8/USD

Rudra Shares and Stock Brokers

The Reserve Bank of India (RBI) has taken prompt action through dollar swaps due to which the rupee has depreciated far less than other emerging currencies. As a result, the rupee has found a new base of 73.5 -73.8.

The Indian central bank will on March 23 carry out the second round of 6-month sell/buy US dollar swaps worth $2 billion to provide liquidity to the foreign exchange market.

In the near term, we do not expect major depreciation from here; therefore go with a modified covered call.

As expected, the correction from an overbought level in the USD-INR currency pair has been priced in and a mild fall from higher level has been witnessed in the last few trading sessions.

At present, demand and supply seem to be adjusted and an up move is likely to resume again. Prices are settled at its short-term moving averages and the immediate short-term base of 73.5 is still intact.

The Relative Strength Index (RSI) is trading near an important support level and a reversal after retracement can be expected in the currency pair.

The medium-term view has turned bullish and targets of 76 and 78 are shaping up in the next few weeks.

A rounding formation on the weekly chart suggests that a new phase of up move will establish once the neckline of the formation (74.55) trades on the higher side on a weekly closing basis.

Recently, we saw the currency pair approach the neckline but failed to close above it on a closing basis. The level is likely to trade on a higher side in a second attempt.

Apart from this, the monthly chart is also favouring the bulls and resuming an uptrend after resting on 20-month moving average.

The intraday chart suggests that the short-term mild correction is over and the bulls are ready to take charge again.

Volatility breakout has been witnessed and prices are tagging the upper Bollinger band.

Trading strategy

Traders can go long in the futures at 74.40 and as a gradual up move is expected, the short positions in 75 CE can be initiated in the ratio of 1:4 at 0.0450.

Note – Option premium mentioned resembles the current market price at 1630 hours as on March 18 of March 19 contract.

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