RBI’s forex team active measures likely to safeguard INR, rate cut likely to propel markets

We all have been noticing the astounding drop in rupee recently made everyone in the streets puzzled but not the imperial bank. The Reserve Bank of India looks well equipped with hedging arrangements against forex risks upto 4% depreciation of INR through FY16 and is not worried.

RBI's financial market team that looks at money markets had been inactive for the last two years since inception but met last month to conduct discussions. They have decided to meet at least once every quarter to keep a watch on Forex movements. On the other hand if the Reserve Bank thinks to reduce interest rates in this policy, it will be the next trigger for the market sentiments.

On the back of it UN measures Indian economy heading towards positive momentum. The economy is likely to clock 8.1% growth in the current financial year, spurred by strong consumer spending amid low inflation, infrastructure projects and government's reform measures, reports a UN report.

Eye on Technical and Currency Derivatives:

On daily charts of EUR/INR we spot out some selling pressure as slow stochastic hints the overbought situation by %K line crosses over exactly above 80 levels in addition to the downward convergence on RSI (14) and price line.

Among the futures lot, USDINR expiring on 27^th May saw highest volumes and open interest, while the same case with EURINR pair on the same expiry period. EURINR dropped to 71.9410 from yesterday's highs of 73.0127 creates opportunity to short at current levels.

The study of price, volumes and OI (open interest) states that dropping price with rising OI is a bearish trend and so is the trend in EURINR.

Shorting near month futures at current levels would fetch the decent yields.