Indispensable volatility might trouble traders in this week and the currency pair could trade with negative bias as prices are trading below short term support level of 71.10.
Rudra Shares and Stock Brokers
USD/INR went through heavy volatility amid geopolitical tensions. Initial gains of the week were wiped out and the sharp decline was witnessed in the last three days of the week ended January 10. Bull’s sentiment was seriously damaged and the currency pair closed with a weekly loss of 81 paise at 70.96 on Friday
In the last few weeks, the currency pair has been locked in the broader trading range of 72.40 and 70.35. Since September 2019, the contra trade from lower and upper levels are providing decent returns to the traders where many times we have seen the prices contracting even further within this broader range. The recent short term support of 71.10 has been traded on lower side which has dampened the bull’s sentiments to some extent and we could expect the further negativity in the prices.
Indispensable volatility might trouble traders this week and the currency pair could trade with a negative bias as prices are trading below the short-term support of 71.10.
Though this fall could extend till 70.65 and 70.35 any selling position should be initiated on retracement only. Reserve Bank of India actively monitor the currency movements and it could intervene after such sharp appreciation in INR. The Central bank could try to maintain the balance as further strength in Indian Rupee could damage the export sentiments of the country. Thus, we would recommend the traders to wait for a retracement and look for shorting opportunity at higher levels. An immediate resistance level is placed at 71.35. Daily RSI is trading near important support zone which could offer trading bounce from current level till 71.25 and 71.35.
Considering the current situation where resumption of the downtrend can be seen after a mild pull back from the support level of 70.65 and volatility would not be ruled out, traders can go for “unconventional bear call spread”. Where put option of 70.75 can be sold at 0.11 and 70.50 PE can be bought at 0.040 at the same time to reduce the risk further, CE of 71.50 can also be sold at 0.0325. The strategy would provide a low risk and high reward trade to traders to gain the maximum premium up to 0.1025 paise.
Note – options premiums discussed above, are based on the closing price of January 13, 2020, of 17th Jan 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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.