28
Dec
12

Currency Options USDINR: January series

December series for USDINR options expired today. With just four days left for fiscal cliff, it doesn’t make any sense to have large position in January series. My base case is that there should be some kind of resolution to fiscal cliff. But in case it does not happen then there might be 3-5% sell off in equities across the world. In this risk off environment high beta currency like INR would suffer.
One important development which is Rupee supportive is re-election of Mr. Shinzo Abe as Japan’s Prime Minister. He has forced Japanese central bank to fight deflation and weaken value of the yen. Yen has weakened considerably in last few days to levels of 86/USD. This might trigger Yen carry trade in 2013 and should be seen as Rupee supportive. Yen carry trade played a contributing factor in Indian market rally during 2003-2007.
Today, there was some noise from the Government about increasing diesel prices. Not sure if really they will able to go ahead and increase diesel prices. In case it is done, Rupee should rally. One contra sign which I see as INR positive is that Mr. Sudarshan Sukhani on CNBC TV18 has turned bearish on INR and see it touching levels of 57. I have become more confident that INR will not touch 57 in January series and sold few OTM calls.

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