The United States Dollar/Indian Rupee (USD/INR) witnessed mild profit booking after hitting the stiff resistance zone of 74.50- 74.60 per US dollar and closed with the mild loss of approximately 10 paise on a week on week basis at 74 per US dollar. The currency pair failed to breakout and fall back in the previous trading range of 73.10 to 74.60 per US dollar.
In an upcoming trading week, traders can expect the recent fall to get abated for the time being and the sideways move in a narrow range could be seen. The bullish 'Harami' candlestick pattern formed on November 26, suggesting that bears have booked profit at lower levels. The momentum indicators are locked in a sideways zone and no major move is expected in an upcoming truncated week.
The currency pair is trading below all major short term and medium term moving averages indicating that profit booking on any bounce might not be ruled out. Trading in a narrow range of Rs73.68 to Rs74.24 per USD is expected in the upcoming trading week with a slightly negative bias. The bears could extend the fall till Rs73.30 per USD if the lower end of the aforementioned range breaks on a closing basis.
FIIs data and fundamental triggers
The continuous inflow of foreign currency is acting as a supportive factor for Indian Rupee. The massive buying figures of foreign institutional investors have surpassed the level of Rs19, 065 cr in the latest trading week which is likely to infuse positive sentiments in INR. India’s GDP data released on Friday evening is not likely to have a major impact on the currency pair. The GDP shrinks by 7.5 percent in Q2 but still surpassed the analyst expectations though the core sector inflation data has kept the growth concern of the economy intact. The overall data is likely to keep the currency pair in a sideways zone.
The US initial jobless claim data which measures the number of people claimed for unemployment benefits for the first time has come higher than expected in the data released on November 25. The 7.78 lakh people claimed for the benefit against the expected figure of 7.3 lakhs. The data is slightly negative for US dollar.
Dollar index analysis
The dollar index, which measures the strength of the US Dollar against six major currencies, is trading with negative bias and has breached the support of the rising trend line. The momentum indicators are trading in a bearish zone and the index is trading below all major short term moving averages. The bears are likely to have upper hands until the level of 92.35 taken out on an upside
Trading strategy
To put things into perspective, it's quite apparent that the currency pair is likely to trade in a tight and narrow range and the theta depreciating based strategy could be a prudent option in an upcoming week. The trades can deploy 'short Iron Butterfly' where at the money (ATM) Call and Put option can be sold to gain premium and OTM Call and Put option can be bought to hedge the positions.
Sell USD/INR 74 CE @ 0.2650
Sell USD/INR 74 PE @ 0.2000
Buy USD/INR 74.50 CE @ 0.0700
Buy USD/INR 73.50 PE @ 0.0625
The strategy is apt for a rangebound market and could provide a maximum gain of up to 0.3325 points with almost 1:2 risk-rewards and decent profitable range.
Note: Option premium mentioned resembles the last traded price as of November 27, 2020, for December 4, 2020 contract. Closing price is taken as per spot levels at 20:15 hours IST on November 27, 2020.
(Manish Srivastava is the Senior Technical Analyst (Equity & Currency) at Rudra Shares & Stock Brokers Ltd. (Sebi eg.No.INH100002524) (RA))
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.
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