'Short-covering can't be ruled out in USD/INR, deploy Married Put in coming week'

After breaking down a triangle pattern on July 2, 2020, the currency pair went sideways and kept consolidating in a range and the target price of triangle breakdown Rs 73 per USD is almost achieved.

August 29, 2020 / 03:34 PM IST

Sleeping bears came into action and breakdown of a trading range has made bulls leaped out of their skin.

The dollar/rupee (USD/INR) has nosedived by more than RS 1.80 per USD on a weekly basis and closed on a panic mode at Rs 73.12 per USD approximately.

We have been maintaining our negative stance in a currency pair for the last few weeks on the back of the weak technical structure, the pattern finally matured and resulted in deep cuts.

After breaking down a triangle pattern on July 2, 2020, the currency pair went sideways and kept consolidating in a range and the target price of triangle breakdown Rs 73 per USD is almost achieved.

Chart 1

Close

In the coming trading week, traders can expect the currency pair to go sideways with a mild bounce back.

Bears are likely to book profit and demand-supply adjustment could result in the short-term bounce in the currency pair.

On the weekly chart, prices are trading near medium term moving averages and RSI is trading at major support levels whereas, in the daily time frame, prices are trading in oversold zone and far below its short term moving averages.

The scenario suggests that the overall structure is still weak but mild pullback might not be ruled out in the coming days.

The level of Rs 73 per USD is likely to act as a support in the coming trading sessions and short covering could take the currency pair till the level of 73.60 and 73.85 which is 23.6 percent and 38.2 percent retracement levels respectively of the latest swing move.

The bears could take the charge again after a retracement till the aforementioned levels.

FII data and economic triggers

FIIs have been net buyers of more than Rs 5,450 crores in the last trading week indicating the strength in INR.

The buying of FIIs throughout the week indicates that bulls are having an upper hand and any bounce back in the currency pair is likely to be short-lived.

The US unemployment claim data which measures the number of people claim for first–time unemployment benefits, has come almost in line with estimates. The data released on August 27 shows that over 1 million people claimed unemployment benefits which are almost in line with the estimates of economists, polled by Dow Jones.

Dollar index analysis

The dollar index, which measures the strength of the US dollar against six major currencies, has witnessed major sell-off in the last few weeks but its impact on USD/INR has reflected in the last trading week.

The overall technical structure is quite weak but the index is likely to enter a phase of consolidation after a recent fall and trade in the range of 92.10 to 93.40 in the coming days.

Trading strategy

Having a glance at the above-mentioned points it's quite evident that though the trend is still favouring the bears mild pullback from oversold might not be ruled out in the coming days.

Traders can trade the setup by taking a contra trade with limited risk and opt for a “married put” strategy where long positions in the futures can be hedge by taking a long position in Put option.

Buy USD/INR future @ 73.5050
Buy USD/INR 73 PE @ 0.0850
Profit booking points - 74.20 - 74.50
Expected profit - 0.91 points

Maximum risk - 0.59 points

NOTE - Option premium mentioned resembles the last trading price as on 28th Aug 2020. The closing price is taken as per spot levels at 20:30 hours IST on Aug 28, 2020.

(The author is Senior Technical Analyst (equity & currency) at Rudra Shares & Stock Brokers)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Manish Srivastava is the Technical Analyst (Equity & Currency) at Rudra Shares & Stock Brokers.
first published: Aug 29, 2020 03:34 pm

stay updated

Get Daily News on your Browser
Sections