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No rate cut by RBI gives strength to INR, traders can form unconventional short strangle.


Date: 10-12-2019
Subject: No rate cut by RBI gives strength to INR, traders can form unconventional short strangle
Rudra Shares and Stock Brokers

The bulls have taken a pause after four weeks of continuous up move in USD/INR. The rally has abated and a sharp decline witnessed, with the currency pair closing with the loss of 50 paise on a weekly basis. The bulls were trapped at higher levels and prices are again seems to be stuck in the sideways zone.

This week, traders can expect the currency pair to fall back in the consolidation phase, with a slightly negative bias in 71.15 to 71.75 range against the US dollar. Price has taken resistance of falling trendline and formed a bearish engulfing candlestick pattern on the weekly chart.

The big red candle has engulfed the real body of the last three candles and this price action suggests that the bulls are tired for the time being and reluctant to take the up move forward.

The immediate short-term base for the currency pair is still intact at 71.1, which is also a previous gap area. Traders need to be cautious at these levels. Any fall below 71.10 could further enhance the profit booking and fall in such case till 70.60 will not be ruled out.

On the daily chart, after a fall from higher levels, a “Doji” pattern is formed, suggesting that we could go sideways for the next few trading sessions.

There are two likely scenarios and traders need to be flexible enough to deal with them. Firstly, there is a high possibility that the currency pair may trade in the range of 71.15 to 71.75 in the upcoming week, as prices are trading near the 50-day exponential moving average, which could cap the fall and will act as a support.

The daily relative strength index (RSI) is trading in a sideways zone and declining ADX suggests that the bulls and the bears are reluctant to enter actively in the currency pair at current levels.

Secondly, there is a probability of the correction extending further. If 71.10 trades on the lower side, 70.60 can be the expected level. Though the chances of the second scenario are quite remote.

Trading strategy

A rate cut of 25 basis points was expected in the recent monitory policy but the RBI opted for status quo, which is likely to strengthen the Indian rupee in the short term. Overall technical structure, as discussed above, is also suggesting the same, so we believe that traders can form unconventional short strangle and short with 1 lot of 71 PE at 0.080 paisa and 2 lots 71.75 CE at 0.040 of December 13 contract.

Source: moneycontrol.com

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