Welcome to our daily pre-market update, where we comprehensively analyze the Indian rupee’s performance in the currency markets. In this article, we will delve into the previous day’s trading session, examining the critical movements of the rupee against major currencies such as the US dollar (USD), British pound (GBP), Euro (EUR), and Japanese yen (JPY). Additionally, we will offer insights into what we can expect from the rupee in today’s trading session.
Date- July 24, 2023
Place- New Delhi, India
USDINR
The USDINR pair exhibits a range-bound bias with the range being from 81.80 to 82.20. Despite a marginal dip in the US Dollar Index and an uptick in Asian equity markets, these factors seem inadequate to trigger a meaningful change in the USDINR trend. The recent spot reference quoted by offshore traders sits near 82.03/04, and over the past week, the currency pair has oscillated between 81.90 and 82.20. This provides an opportunity for option scalpers and tick traders, who generally avoid holding positions overnight, to engage in fast-paced trading during the day, targeting minor spreads.
We further enhance the trading experience by providing free intra-day brokerage for traders who subscribe to their trade-free plans. This ensures the statutory cost for 500 lots to remain below 40 rupees. These traders execute multiple trading cycles daily, adjusting their ticket sizes between 100 and 5000 lots. Their preferred options are typically out-of-the-money with a weekly expiry. Given the Implied Volatility (IVs) hovering around 3%, traders are willing to shell out about 4-6 paise, equal to 400-600 rupees per contract. These strategies, characterized by a short holding period and large leveraged positions requiring margins as low as 25,000-30,000 rupees, are highly appealing. However, it’s critical to maintain strict discipline as the loss threshold is rather narrow and is unsuitable for traders lacking discipline.
Strategies involving option selling such as short straddles and short strangles should consider the current record low IVs. It’s recommended to keep the position size small, but if an increase is necessary, opting for fully hedged strategies like iron flies or iron condors, or partially hedged strategies, would be a more sensible choice.
GBPINR
Moving to GBPINR, it’s facing a downward drift with the range being 105.15 to 105.75. Traders have to factor in various data points this week including flash PMIs from the UK and the US Federal Reserve meeting. The unanticipatedly soft inflation report has resulted in revised expectations for the Bank Rate peak, now projected around 5.8% as opposed to the earlier forecast of 6.5% in early July. This downward adjustment has placed pressure on UK bond yields, an essential determinant of capital flows, thereby negatively affecting the GBP. Following this, a long liquidation triggered a drop in the GBPINR pair from 108.00 to 105.30 levels.
The 105.00 support level is critical, and should it fail under substantial volume selling, prices risk sliding further toward 104.00. Conversely, considerable resistance is anticipated around the 106.00/106.20 levels.
EURINR
The EURINR pair exhibits a range-bound bias, with a range from 91.00 to 91.50. Both EURUSD and EURINR have displayed consolidation over the previous week. The forthcoming Eurozone flash PMIs could potentially stir up volatility. The EURINR’s correction has been less severe than that of GBPINR, yet there is room for further decline, with robust support observed around 91.00 and 90.70 levels. Resistance is expected near the 91.60 and 91.90 levels. Traders are advised to proceed with caution and stay updated with the PMI data to be released today.
JPYINR
Fluctuations in JPYINR are anticipated to diminish as traders hold off for the Bank of Japan’s (BOJ) decision, set to be announced on Friday. The market consensus leans towards the absence of any policy alterations, a scenario that could potentially amplify JPY’s fall against key currencies such as the Euro, GBP, Indian Rupee, and USD. However, an unexpected move by the BOJ to tweak its yield curve control policy might trigger substantial reactions, with both the Yen and JGB yields potentially surging, and risk assets possibly facing sell-offs. As such, it is recommended to exercise caution while holding open positions in JPYINR throughout the week.
Key Points to Consider Today
Friday saw a mixed closure for U.S. stock indexes amidst fluctuating trade, although the Dow Jones Industrial Average continued its successful run for the tenth consecutive day – the longest winning streak since August 7, 2017. Investors had to manage the monthly expiration of trillions of dollars in stock options and prepare for a significant rebalancing of the Nasdaq-100 index on Monday. This is happening in anticipation of next week’s Federal Reserve’s July policy meeting. An early indicator of the shift from high-valued growth names to value is the recent pullback in tech shares. The S&P 500 recorded a weekly gain of 0.7%, while the Dow Industrials progressed by 2.1%. However, the Nasdaq Composite retreated by 0.6% over the week.
With 18% of S&P 500 companies disclosing actual results, around 75% have surpassed analysts’ expectations. The current quarter is predicted to witness a 9.6% drop in earnings.
The Fed is scheduled to meet next Tuesday and Wednesday. Their decision will be announced in a policy statement on Wednesday at 2 p.m. Eastern Time, followed by Powell’s press conference at 2:30 p.m.
Asian stocks exhibited mixed performance at the start of a busy week filled with numerous central bank decisions. Hopes for policy changes in Japan have sparked positive sentiment. Focus in the Chinese markets this week is on any additional government stimulus coinciding with an upcoming Politburo meeting.
On July 21, the Nifty experienced a significant drop due to disappointing results/guidance from IT companies, including Infosys. It saw its steepest decline in roughly 18 weeks, closing 1.17% or 234.2 points lower at 19745. On July 21, the Nifty snapped a six-day winning streak. Despite some late-week losses, it managed a 0.92% rise on a weekly basis. The weekly charts hint at a potential shooting star pattern for the Nifty, raising concerns about the index topping out. The Nifty could remain within the 19524-19854 range in the near future. If it slips below 19524, it could validate the formation of a peak at the weekly high of 19992.
Disclaimer
CurrencyVeda provides information purely for educational purposes. We are not financial advisors or brokers. The content we provide should not be taken as financial advice or a recommendation to buy or sell any sort of investment or security. Always perform your own due diligence and consult with a licensed professional before making any investment decision.
