This week is going to be extremely busy for FX market watchers and we have just 3 full trading days, and just one hour of Muharat trading on 4th Nov.
Nov 1 - Provision trade number for India, and anchor book for India's largest IPO (Paytm) closing.
Nov 2 - RBA (Australia) rate decision. Look at how AUD yield curve has moved in recent past.
Nov 3 - Critical FED meeting. FED likely to announce the taper. Things to watch would be monthly taper amount, governor tone and dot plot.
Nov 4 - BoE meeting. Remember, how short end of the UK bond curve reacted after governor, Bailey comment last Sunday.
Nov 4 - OPEC+ meeting. Will see if G-20 leaders have been able to influence them to increase supply.
Nov 5 - Mother of all economic date - NFP number.
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I have been talking about USDINR for some time. But one cannot trade comfortably in the product unless understand how the underlying moves. And the best way to understand is historical volatility over different time frame.
Given that equity has India VIX as a reference point, currency does not have as of now. We are looking at how we can help the option traders with this data point. Will come back on this.
But let's today focus on historical volatility. Right now volatility in USDINR is sub 4% but it is not the lowest. It almost touched 3% in Feb'20.
India FX reserves has grown over the year and is now the world's 5th largest.
So, what is the significance of this number - FX Reserves?
FX reserves basically represent the total foreign currency holdings that RBI has. Higher the reserves, better it is for the stability of it's currency.
Want to understand what makes #USDINR interesting from an individual #option trader perspective.
Let's try to understand this in this thread. USDINR has both weekly and monthly options contract which are fairly liquid. Today was weekly expiry.
Weekly options expire every Friday at 12:30 pm and monthly options at 2 days prior to last working day of the month. Margin applicable in USDINR is normally between 2.5% to 3% depending upon volatility.
Margin for one lot of USDINR #straddle (74.50 July 30 expiry - weekly contract) is roughly Rs. 2600/2700 and premium received is around 35p, which on one lot comes to Rs. 350 ($1000*0.35).
Sometimes, regulatory changes have asymmetric impact on different products within same eco-system. Peak margin seems to be one, having salutary effect on currency volume on Indian exchanges.
Currency volumes on Indian exchanges (NSE + BSE) seem to be gaining momentum this year, after an almost flat volume growth over the last 3 years. Until June end, ADV is up by almost 31%.
But what is interesting to note is increasing option share in total volume.
Since Dec'20, when peak margin got introduced, option share in total volume (futures+option) is slowly inching up, thanks to increasing interest in weekly options contract + possible peak margin effect.
USDINR futures closed at 74.71 for the day, almost 32p lower, despite dollar index holding up well. If private flow is the main reason for today's left side move in USDINR, overarching narrative for today can construed as capital flows.
Let's see if this narrative (flows) can play out on Thursday as well, in the background when dollar index is still holding up well around 93 levels and US 10Yr bond quoting below 1.20.
Capital flows is one of the major indicators to look at, for INR movement. Higher the inflows, better it is for INR and vice versa.
But along with inflows, it is also important to see the quality and stickiness of flows.
Since India is a net importer country, meaning imports more than export, (thanks to large share of oil in import basket), it needs to meet its shortfall through capital flows.
A country gets the flows mainly through 3 sources: