USD/INR Analysis and Path Ahead
Morning Update: Will the USD/INR pair continue to tumble or rebound from its current trading level of 82.80 ?
Over the past few days, the USD/INR has been declining and has broken below the resistance zone of 83.50 that we previously covered in our study. For the past few weeks, the USD/INR exchange rate has been fluctuating between 83.00 and 83.50, but on friday, it finally dropped below the 83.00 zone in spot and closed below it. Using the USD/INR chart and the January monthly options data, let's analyze the trend to see if it will continue to decline or rise:
- The USD/INR has been moving sideways for the past few weeks, trading between 83.00 and 83.50. Last friday, it broke through and closed below that level.
- The chart indicates that there is strong support approaching, and there may be significant demand for USD/INR around the 200 DMA, which is situated in the 82.70 region.
- The January monthly option chain for USD/INR also points to significant put writing near the 83 strike, indicating a potential steep increase in the USD/INR pair.
Please carefully examine the preceding chart to comprehend the USD/INR price behavior. For weeks, the USD/INR exchange rate has been moving in a sideways pattern inside the 83.00–83.50 region. Last friday, it broke down and closed below this range. The fact that USD/INR broke the 83.00 zone last week and closed below it after October indicates that the USD/INR is exiting its long distribution phase. However, the 200 DMA, which is located around the 82.70 zone, indicates strong demand and buyers may push price above the 83.00 zone once more, exactly what the USD/INR January monthly option chain suggests.
Let's now examine and comprehend the USD/INR January monthly options chain:
The option chain depicted in the above table exhibits strong put writing at 83 strikes, and even if the price has fallen below the 83.00 zone in the spot market, the writers have not given up yet, indicating that buyers may push the price above the 83.00 zone at any time. The option chain indicates that the USD/INR may make a strong upward move and climb back toward the 83.50 spot zone.
The Dollar-Rupee pair (USD/INR) has been consolidating for a number of months within the area of 83.00 to 83.50, as indicated by the chart and option chain above. It appears that this consolidation will continue. The Reserve Bank of India's (RBI) actions have kept the USD/INR exchange rate comparatively constant in spite of the dollar index's high volatility.
We may anticipate that the USD/INR will continue to rise, and it may move between the 82.80 and 83.50 zone. This represents a range of about 70 paisa where the USD/INR may trade for the next few weeks before forming a new range. Since the risk in this trade is 20 paisa and the payoff is 70 paisa, traders can search for buying opportunity in the USD/INR pair. Traders utilize the risk to reward ratio to control their capital and risk of loss. The ratio is useful in determining the risk and expected return of a certain trade. Broadly speaking, higher risk equates to higher projected return demands. Anything above 1:2 indicates a suitable risk-reward ratio.
Look at the levels of support and resistance on the USD/INR daily chart. Every level is displayed on the spot chart:
|
USD/INR |
Support |
Resistance |
|
Level 1 |
82.70 |
83.40 |
|
Level 2 |
82.50 |
83.50 |