FxWirePro: Buy INR; sell Silver

The Reserve Bank of India (RBI) has once again reduced rates by 25 bps today, pushing the repo rate to 5.75 percent and the reverse report rate to 5.5 percent. This is the third rate cut this year targeted to inject liquidity into the troubled banking sector and to boost economic growth amid a slowdown in economic activity.

A rate cut usually weakens the currency, as interest rate differential declines, but in case of India, the rate cut and the expectation of further rate cut thanks to a drop in inflation, and oil price, the country is benefiting from an investment flow in the country, especially in the equity and bond market. India’s benchmark stock index Nfty50 is hovering at fresh record highs, up more than 10 percent since the beginning of the year. Indian stock market has been the top performer amid recent selloffs in global stock markets. Thanks to declining yields, bond market witnessing a mega rally. Same can be said for the exchange rate. Despite the ongoing strength in the USD, the Indian rupee is up 0.4 percent against the dollar, since the beginning of the year.

We have already forecasted a bearish silver target for the silver beyond $14 per troy ounce area n previous articles. And a stronger INR makes short silver a better bet against the INR.

The chart pattern shows above strongly suggests a short silver against INR, at least in the short run. The chart, prepared Kite charting software of Zerodha, clearly shows Silver June contract, and the price action forming a bearish inverted hammer candle in the daily chart and a crucial down trending resistance line.

The trade is expected to generate 3-4 percent return in the short term.