Rupee slides to a Record Low! What is USD/INR Derivatives Data Indicating?

  • Forex Analysis

The fall of the rupee against the US dollar seems to be a perpetual trend now as the Indian currency has consistently been making new lows for the last couple of months. The rupee has plunged by over 5.7% this year which includes today’s massive fall of 0.39% to 78.72. 

There have been numerous factors contributing to the rupee’s fall which primarily include the continuous selling of foreign institutions in the Indian markets and the sustenance of crude oil prices at higher levels. Last week, crude oil dipped below US$110 a barrel, but as of Tuesday, it is back to over US$116 per barrel which has again raised concerns over the high import bill of the country as it imports almost 80% of its crude oil consumption.

The RBI is also finding it difficult to put a leash on the falling rupee despite using its forex reserves. According to the latest statement by the RBI, the forex reserves of the country fell to US$590,588 billion as of 24 June 2022, down over US$16.72 billion from March 2022 end. 

Looking at the price chart of the USD/INR pair, the strong positive trend is clearly visible. The pair has been taking support from a rising trendline from almost the beginning of the year. The trendline hasn’t been breached since it started supporting the pair, despite being tested almost 4 times, which makes this trendline quite important. Unless the pair breaks below this rising trendline, the medium-term trend is expected to remain on the upside. 

Image Description: Daily chart of USD/INR (spot)

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Currently, this trendline support is coming around 77 which is quite deep compared to the current rate of 78.72 and is not expected to be tested in the near term. However, minor support at around 77.9 is also present which could be looked upon in case there comes a retracement in the pair.

The derivatives data is also looking bullish as of now. The USD/INR July futures is currently trading at 78.95, gaining 0.43% for the day so far. The 79 CE for the 27 July 2022 expiry which is the ATM strike is currently trading at a premium of 0.39, meaning the market is expecting the rally to continue till 79.35 in the futures market. In other words, more weakness of up to 39 paise by 27 Jule 2022 is currently being anticipated. Interestingly, more than 1.7 lakh contracts have been written at the 80 CE, which is probably the maximum upside, the pair is expected to hit, by the expiry.

On the Put side, the highest open interest has been added at 78.5 PE, at over 54.3K contracts, which shows the aggressiveness of the bulls as it is only 2 strikes down and less than 50 paise away from the CMP.   

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