Rupee likely to move sideways on FII inflow, US job data; deploy ‘short strangle’

Last month went through the phase of consolidation where the currency pair remained approximately in the range of 76.15 to 75.

Looking at the current technical structure, it seems that buying interest can pull the prices again towards the higher end of the range in coming days.

However, major strength can be seen only, if 76.15 trades on higher side and in such case further buying can be expected till 76.40. Medium term and short term moving averages are overlapped and trading with almost flat curve, scenario reflects the extended period of accumulation which could continue in coming days as well.

Positive cross over in stochastic and RSI bouncing back from support levels indicates that the current sideways scenario is likely to be biased towards bulls.

Volatility breakout and positive price pattern on intraday charts also supporting the mildly bullish view and the currency pair is likely to trade in the range of 75.25 to 76.15 in coming days. USD/INR spot daily

FII's data and fundamental triggers

Voluntary exchange in frontline equities over the week has brought in decent foreign currency inflow in the country.

Inflow of more than Rs 13,927 crores during the week is a positive trigger for Indian Rupee and this one of the major reasons which resulted in appreciation of domestic currency (Indian Rupee) against the US Dollar on June 2 when major chunk of participation by FII’s of more than Rs 7,498 crores was seen.

On the other hand USD also appreciated on the back of better than expected jobless claim data. As per report 2.5 million jobs were added last month and decline of 1.4 percent has been witnessed in unemployment rate on a monthly basis.

Street was estimating the jump in unemployment rate to 19 percent but the actual figures beat the estimates and fell to 13.3 percent against the figures released in April of 14.7 percent.

Positive triggers for INR as well as USD are likely to neutralize the sentiments and sideways move in the currency pair could continue in an upcoming week.

Trading strategy

Looking at the overall market structure, it is quite evident that sideways movement is likely to continue in the currency pair.

Traders can adopt theta depreciating strategy to take advantage of the scenario and form traditional short strangle where out of the money call and put option can be sold to gain premium amount.

SELL USD/INR 76.25 CE @ 0.0550
SELL USD/INR 75.25 PE @ 0.0500
MAXIMUM GAIN: 0.105
STOP LOSS: 75 on lower side and 76.50 on higher side

Note: Option premium resembles the closing price as on June 5 for June 12 contract.

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