Traders can form a “Short Strangle” in the currency pair and go short on July 29's 69.25 Call Option as well as 68.5 Put Option at 0.05 each to gain the premium through theta decay
Manali Bhatia
US Dollar/Indian Rupee bounced back from the support levels of 68.4. Last week, the currency pair formed the “Doji” candlestick pattern at the support levels on daily as well as weekly chart.
The pattern did its work and we have seen the weakness in Indian Rupee of approximately 60 paisa against the USD. It tested its target of 20 Day Moving Average which is placed at 68.79.
Moving ahead, in the coming week we can expect limited downside in rupee till the level of 69.2. After two months of strength in rupee, the pair has entered in sideways zone and going through the multi time frame analysis. We can clearly figure out that strength in the rupee is almost matured but bears are not looking strong enough to drag the currency below 69.20- 69.3 zone.
The 20-day moving average usually work as a median for the prices and any divergence from the average generally settle near it to regain the fresh move.
Taking the longer term view into consideration the monthly USD/rupee is trading at its 20-month moving average after going through significant decline and we can expect the prices to remain subdued at these levels for some time before fresh trending move.
In a weekly time frame, RSI has bounced back from the support levels and bullish “doji” candlestick pattern is followed by bullish candle which is providing further strength to the pattern. But traders need to keep in mind that the currency pair is trading below all major short term and long term moving averages and any weakness in rupee is likely to be very limited and short lived.
On daily chart, prices are trading above 20 DMA but immediately facing a medium term Exponential moving averages which is suggesting that bears in rupee is still skeptical and might lose strength at lower levels.
To put the above scenario into perspective, we believe that traders might face subdued and sideways move in the coming week. Though the strength in rupee seems to be matured but the downside is also limited. We believe that traders can form a “Short Strangle” in the currency pair and go short on July 29 69.25 Call Option as well as 68.5 Put Option at 0.05 each to gain the premium through theta decay.
(The author is Senior Research Analyst at Rudra Shares & Stock Broker)
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