Rudra Shares and Stock Brokers
USD/INR traded in an extremely narrow range last week and closed with the loss of 35 paise on a weekly basis at Rs 75.60 per dollar. Phase of consolidation after recent sharp upmove is continued and the currency pair remained locked in a trading range.
Though the prices are stagnant in tight trading range but the bulls are still having an upper hand as this sluggish movement is taking place in the territory of bulls and longer term patterns are indicating towards higher targets in coming days.
Higher top and higher bottom cycle is still intact in the currency pair and the current subdued phase is preparing the bulls for the next leg of rally.
Medium term moving averages ribbon is trading with an absolutely flat curve and providing support to the prices on every dip. RSI has been trading in a sideways zone since the beginning of May and bounced back twice from the support zone indicating the bias on the upside is intact.
Short term support is intact at 75 which is likely to hold in coming days and any fresh upmove can be expected only once 76.40 trades on higher side.
Indications from the intraday chart suggest that probability of breakout is quite high as bullish volatility divergence has been witnessed on hourly charts that could ultimately transcend the bullish sentiments into a larger time frame. In an upcoming week traders can expect the prices to trade in the range of 75.1 to 76.15 with bullish bias where the chance of breakout on an upside is quite high.
FII data and fundamental triggers
Foreign Institutional investors infused some positive sentiments as far as INR is concerned as they have been net buyers of more than Rs 8,196 crore last week. Inflows of foreign currency have supported INR to some extent and kept the USD/INR in tight trading range last week.
Apart from this GDP numbers released on Friday could act as neutral trigger for domestic currency. Though the slowdown in growth to 3.1 percent has been registered but it has still surpassed the various estimates made by economists. As the data contains only one week of lockdown figures, the major impact of the lockdown can be seen in Q1 figures while latest data can also be revised by the government.
Major concern for INR is widening fiscal deficit figures which have missed the estimates by 80 basis points. The 4.59 percent fiscal deficit of GDP against the target of 3.8 percent could be a drawback for domestic currency and offset the mild positive sentiments delivered from above mentioned triggers. Currency pair could give mixed on the back of positive FIIs data, neutral GDP numbers and weak fiscal deficit figures and USD/INR could continue trading in a range with positive bias.
Dollar index analysis
Dollar index measures the strength of US currency against six major currencies of the world. Though Indian Rupee is not a part of it but behaviour of USD against other major currencies also need to be taken into consideration if we are trading in USD/INR. For the last two months it has been trading in range and recently formed a bullish candle near the short term support level. Index is currently trading at 98.34 and expected to bounce back till the level of 99 in the coming days. Some positive signals are developing on the intraday chart suggesting that bounce back from support level is expected.
Keeping the above factors in mind it's quite evident that positive triggers for INR could be offset by average GDP numbers, negative fiscal deficit figures and expected strength in USD against other major currencies. Hence, range bound move with positive bias can be expected in an upcoming week. Traders can opt for married put where long positions in futures can be initiated with the long positions in put option. 75 per dollar is likely to act as immediate support and PE of 75 strike price can be bought which will cap the downside risk in strategy.
Buy USD/INR future @ 75.79
Buy USD/INR 75 CE @ 0.0425
Profit booking level - 76.55 to 77
Maximum profit 1.1675 points
Maximum loss 0.8325
Note: Option premium resembles the closing price as on May 29 of June 5 contract.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.