Mar 15 2019

USDINR Ideas – turnaround closeby

What a fantastic move it has been. Just when the market participants were getting comfortable at 70.50 – 71.50, rupee surges to its highest level since mid August 2018 – 69.09 is today’s close. I remember reading multiple currency forecasts (in our reputed pink papers) – predicting substantial rupee weakening (towards 75 – 78, some even 80). Earnestly hope (and pray too) that media acts responsibly and focuses on “news” rather than on “views”, sparing the readers of sleepless nights.

Rupee has gained a massive 3.3% in 12 working days. The most widespread reason justifying rupee appreciation is the so called ‘foreign fund inflows’. A quick glance at the FII data indicates a net inflow of $2.4 billion in debt and equity in Mar 2019 till date. There has been news of corporate inflows as well. Do these flows substantiate such a large move in such quick time – quite doubtful? Were there speculative elements too – quite likely!

Recall the election euphoria of 2014 – rupee gained from 63-64 (5-6 months prior to election results) to 58.50 (around 16 May 2014 – when results were declared). Subsequently, rupee weakened back towards 63-64 (5-6 months after the election results). A classic case of “buy the rumour, sell the fact”. Is a similar phenomena repeating now – quite possible?

Technically, dollar is oversold (and rupee is overbought). Momentum indicators are deep in the oversold territory. A price gap formed on the daily charts between 69.02 (10Aug2018) and 69.40 (13Aug2018) is filled today – check the horizontal red lines. Occasionally, price gaps tend to indicate important turning points.

Importers: am sure you would have started hedging. If not, start doing forwards and vanilla options too. Levels of 69 are mouth watering compared to 71-72 (seen just 2-3 weeks back).

Exporters: refrain from doing forwards at current levels. Vanilla options are the best bet now. Put Spreads will also work out well.