Arrest short term trading risk of USD/INR ahead of US Fed meet

USD/INR is most likely to trade on the negative note ahead of US FOMC meeting. Dollar's weakness is predicted ahead of the U.S. Fed meeting. The rupee against dollar was showing strength on Tuesday after a weak U.S. consumer confidence report. With investors being careful about a Federal Reserve meeting that could add force to the view of interest rates in the world's largest economy might rise more gradually than initially thought.

The Fed is expected to keep interest rates on hold, but the major focus will be on the statement at the end of its policy meeting on Wednesday. The dollar lost 4% in the past six weeks as expectations of a rate rise in June have faded after a run of soft data triggered worries that the U.S. economy is stalling.

Technical watch:

Technicals indicate a near term bearish trend which is substantiated by indicators as below
RSI (14) - converging downward slope exactly above 70 levels which is a clear signal for bearish trend
Stochastic - redline cross over occurred above 80 levels
CCI - Declining slope at same levels of above two indications.
The rupee yesterday ended stronger at 63.1450 compared with Monday's close of 63.48

Derivative Strategy: Sell call spread

Combining all these hot news lingering around the corner and strong bearish technical signal we recommend to sell a call spread to arrest the near term potential risk. In order to execute this strategy, the position should be constructed this way - sell a far month ATM call option contract simultaneously buy the OTM call option with the same expiry. By doing so net credit of premium can be pocketed as At the money contracts are relatively costlier than out of the money contracts. And we are selling ATM contracts here.