We look ahead for GBP/INR to stay positive on the back of poll results put Britain's ruling Conservatives six points ahead of the opposition Labour party in parliamentary elections.
With the election just few days underway the news that the UK's economic recovery slowed sharply in Q1 doesn't seem to help the coalition parties, we look at this slowdown is to be just temporary.
The preliminary estimate of a 0.3% quarterly rise in GDP in Q1 was weaker than the consensus forecast of a 0.5% rise which was a disappointing numbers and this is already priced in yesterday's trade sessions. However in totality on an annual basis, the British economy has been growing at a healthy 2.4% pace.
Although we don't foresee any annoyance to this pair, some big events coming up such as general elections, UK's consumer confidence and net consumer credit on the row Indian importers are advised to get in into OTC options contracts. Technicals on daily and weekly chart did not indicate any downside risk.
Derivatives Strategy: Call ratio spread
On sensitive political outcome and significant economic data release, we thereby recommend "call ratio spread" as the pair is likely to remain either sideways or slightly bullish in our view. Buying call spread in addition to selling more necked call options constitutes this hedging position. The portion should ideally be in the ratio of 1:2 or 1:3 with short time for expiry is preferred.
Breakeven will be at: short strike price + difference in strike price + net credit
