Rupee may remain under pressure amid widening trade deficit, attack on crude tankers
Slight depreciation in the Indian Rupee was seen against US Dollar as USD/INR bounced back from the support levels of 69 and finally closed at 69.8900.
50 Day Moving Average has been breached on an upside and on daily chart prices are trading near declining trend line.
Looking at the momentum indicators and Average Directional Index (ADX), we can easily see that the trend is completely missing in this currency pair and prices are locked in a trading range.
USD/INR spot chart
In an extremely short term, rupee is going through a mild phase of depreciation as momentum indicators in intraday charts is suggesting strength in US Dollar and in coming week, we can expect this depreciation in rupee likely to continue till the level of 70.30 and 70.70.
We have witnessed the whipsaws in prices at twice near declining trend line resistance. Hence, cautious approach should be adopted by traders at higher levels as this weakness in rupee is likely to be short lived as broader picture still giving a sense of sideways movement and prices are locked in trading range of 70.7 and 68.9.
Apart from that, negative news in crude oil is putting pressure on rupee. Amid Middle-East tensions, two crude oil tankers were attacked in the Gulf of Oman. As more information is still awaited with regards to who carried out the attack but the incident has surely ruined sentiments to some extent.
In addition, trade deficit has widened by $ 0.74 billion on year on year basis to settled at $ 15.36 billion in May which is likely to put pressure on rupee.
On the other hand, Forex Reserves are near to lifetime high, in current RBI data released on June 7, the Forex Reserve had increased by $ 1.87 billion to $ 423.5 billion, which might not let the Indian Rupee to depreciate beyond 70.7.
As per the current market scenario, we would like to recommend for traders to initiate long positions in USD/INR at CMP 69.89 and to hedge the positions with two out of the money weekly call options that can be sold at 70.25 and 70.50 strike prices respectively.
(The author is Senior Research Analyst at Rudra Shares & Stock Brokers Ltd.)
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