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Last Updated : Jan 14, 2020 12:43 PM IST | Source: Moneycontrol.com

Volatility likely to continue, selling pressure could be seen after mild pullback in USD/INR

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.

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

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.

Close

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.

Short and medium-term moving averages will act as a resistance now and any pullback is likely to be sold into. Bearish engulfing candlestick pattern on weekly chart suggesting that bulls are tired and any pullback in the coming days might see the resumption of selling pressure. High volatility and sharp fall have resulted in a complex technical structure which will require a cautious approach while trading in currency pair.

Image11412020USD/INR DAILY

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.

Trading strategy

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.

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First Published on Jan 14, 2020 12:43 pm
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