USD/INR bulls and bear-in a tug of war

Rahul Gupta Emkay Global Financial Services Limited

After a sharp one-sided bull rally witnessed in USDINR spot last week, this week the situation on markets might cancel out both bulls and bears, leaving the forex trading in a range-bound zone.

This week, the correlation across asset classes will remain high as earnings season will begin in the US. The risk appetite may fare on the performance of companies activating the USDINR bears but worries over coronavirus acceleration bulls will activate the bulls in the market.

The bears seems to still ignore the ongoing grim of COVID-19 infection news and are focusing on optimism regarding the time-line for the discovery and rapid roll-out of an effective vaccine and/or more policy support for asset prices. It seems that they are not worried of coronavirus, maybe because the death rate is still relatively low and health care systems are better prepared to deal with it. Also, somewhere market knows that governments and central banks will continue providing stimulus until the global economy is back on its feet. Also, the Reliance Jio related dollar flows doesn't seem to get over. The Qualcomm will be investing Rs 730 crore for a 0.15% stake in Jio Platforms in coming days, keeping the upside in USD/INR spot limited.

While, the USDINR bulls are worried about the acceleration in coronavirus cases and potential market volatility around the Nov 3 US presidential election. Also, the ECB is expected not to increase the stimulus at this week's monetary policy meeting because economic prospects have started to improve in the euro-zone.

Technically, USDINR spot is showing signs of indecisiveness and it is difficult to analyse in which direction the spot will move. As seen in the chart, the RSI is currently at 48.18. The annualised premium for 1-year forward has dropped to 3.8% from a high of 4.01% seen last week. Meanwhile, the USD/INR 1-month ATM Volatility is hovering around 5.5%.The USDINR PCR (Put/Call ratio) is around 0.9%.

On a border range, we expect the USD/INR spot to trade within 74.75-75.75. The immediate support lies around 74.95 while the crucial support is at 74.70/74.75. If the spot respects the 74.70/74.75 mark then resistance is located at 75.25 and then the next resistance will be observed at 75.40-75.65/75.75.

Author

Rahul Gupta

Emkay Global Financial Services Limited

Rahul Gupta is a derivatives expert with an MBA from Mumbai Educational Trust, having more than a decade year of experience in trading derivatives strategies across asset classes.

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