Below-than-expected Yuan reference rate & fall in oil prices likely to tame USD
USD/INR eventually broke out of a sideways zone and appreciated more than 1.6 percent last week. The currency pair was respecting the falling trend line resistance for the last six months, but recent strength seen in the dollar has finally placed the bulls above important resistance levels.
The strength in the USD/INR is likely to continue in the coming week as well, but its momentum could cool off. Traders can expect the price to settle at these levels after a strong rally, but the bias is likely to remain on the long side. A positive crossover of major short-term moving averages over long term averages suggest that the bulls are likely to have an upper hand in the days to come.
The currency pair is trading above its 200-day Moving Average for the first time since February 2019, which could be the first sign of prolong weakness in the rupee. The USD/INR was trading in a broad range of 70.65 and 68.5 for the last five months and after breaking out of the range, prices has tested the support level again and formed a bullish green candle; RSI has also bounced back from its support level.
On the global front, the dollar is gaining strength against the yuan as China’s central bank has set the official midpoint reference rate at 7.0136 per dollar, which is its weakest since April 3, 2008. However, it is still under a satisfying level because analysts were expecting even lower levels (7.0222).
As a result, it will likely to cool off the ongoing rally in USD/INR. On the other hand, the downtrend in crude oil prices is likely to provide support to rupee. Despite being in the bullish zone, the prices of the currency pair could see stagnancy in coming week.
Being a truncated week, it will be prudent idea to take advantage of Theta decay and looking at the current scenario traders can go short in 2 lots of 16 for August at 70.25 PE and 1 lot of 71.50 CE at 0.05 and 0.0575 respectively.
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