Seven months range breakout suggests rupee gradually heading towards 73.60/$

Rudra Shares and Stock Brokers

The bullish replica of Oct–Nov 2019 has played its part and breakout has been witnessed in USD/INR. For the last two weeks, we have been urging the bears to maintain cautious stance as initial signal of an expected breakout is emerging on the chart. Finally, the roaring bulls came into action last week and the currency pair has closed with the approximate weekly gains of 60 paise.

The currency pair is trading at its highest point since December 2018 and the ongoing up move is likely to continue. For the last seven months, prices were trading in a broad range of 72.42 and 70.36 and on Friday’s trading session it has broken out of the range indicating that fresh round of an up move is shaping up for the next few days and the currency pair is entering into a different trajectory.

Apart from rectangle range breakout, triangle breakout has also taken place which is suggesting the target of 73.6 in the medium term. The base has further shifted upward and now any fall is likely to get arrested at falling trend line support which is placed at 71.90 level. Second medium-term support exists at 71.50 where a cluster of major medium term moving averages ribbon is placed. Momentum indicators are trading in a bullish zone and trend following indicators like ADX is showing that the bullish trend is developing after a long time.

USD/INR SPOT

Medium to long term trend is also developing on an upside, if we take monthly chart into perspective the higher top and higher bottom formation was prevailing since 2009 and for the last one and a half years prices have gone sideways. This phase of consolidation seems to be over and the currency pair could head towards new highs in coming months as monthly RSI has started trading in a bullish zone after one year.

In an upcoming week, positive bias should be maintained by the traders. Prices could go sideways for some time after breakout but multiple support levels would provide cushion to bulls on every dip and eventually the bulls are expected to take the rally forward.

Trading Strategy

Overall structure suggests that currency pair could take a mild pause after the breakout but the trend is still intact and level of 73.10 to 73.50 could be approached. Fresh base is emerging at 71.90. Hence, traders can initiate short positions in 71.75 PE at 0.0675 and 71.25 PE can be bought simultaneously at 0.0125 in the ratio of 1:1 to hedge the positions. The strategy would enable the traders to get the premium of 0.055 paise with limited risk.

Note – Option premium mentioned resembles the closing price as on February 29 of 6th March contract.

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