Weak FII data and strong technical structure could foster strength in USD, deploy Married Put

Rudra Shares and Stock Brokers

As expected bulls have taken the charge once again and decent demand has been witnessed in USD/INR at lower levels. In spite of being remained in the sideways zone prices bounced back from the lower end of the range and closed with the weekly gain of 0.30 paise at 75.83.

The ongoing bullish trend of the currency pair has entered into the phase of consolidation which is likely to lay the foundation for the next trade setup.

Last week prices formed a 'Bullish Harami' candlestick pattern on the daily chart which was followed by two consecutive green candles. Medium term moving averages ribbon is still trading with a positive curve and acted as support for the currency pair last week.

USD/INR CASH

In the upcoming week, the sideways move is expected to continue with positive bias as RSI has bounced back from the important support levels and formed a double bottom formation.

Stochastic has also shown a bullish crossover and a reversal pattern from the oversold zone. Short term support is still intact at 74.5 which is likely to be held as per current market structure.

Bulls are having an upper hand on intraday charts, volatility breakout has been witnessed in hourly chart where prices are tagging the upper Bollinger band and momentum indicators are trading in a bullish zone. This bullish pattern could transcend into higher time frame and gradual up move can be expected in the coming days. Trading range for next few days is likely to be in the 74.90 - 76.4 zone.

FII Data and Fundamental Triggeres

There was a net outflow of foreign currency last week of more than Rs 5,951 crore suggesting a bullish bias in the currency pair is intact. Outflow of foreign currency deteriorates the sentiments of domestic currency, which is INR in this case.

Net selling figures were witnessed from the foreign institutional investors throughout the weeks except on 11th May where minor buying was recorded. Selling figures boosted the sentiments of USD/INR and pullback from lower levels was witnessed. The scenario is suggesting that strength on USD is likely to continue and the currency pair could trade with positive bias.

Indian government is applying every possible measure to save corona hammered economy but this artificial liquidity does not seem to be improving the lacklustre sentiments of Indian rupee. Stimulus package of around 10 percent of India's GDP showed only time being positive effect on the domestic currency but eventually it didn't turned out to be trend changer and weakness of INR against USD continued.

Trading Strategy

Weak FII data and strong technical structure suggests that pullback rally in the currency pair could continue for the next few days and breakout on higher side might also come into action. Hence, we believe trading strategy should involve limited downside risk and room on the upside should be left open. Traders can trade this view with the help of “married put” where long position in the futures can be initiated and to cap the downside risk put option can be bought.

Maximum loss 0.495

Note - Option premium mentioned resembles the closing price as on May 15 of May 22 contract.

Date: May 19