In a recent look at the Indian markets, both Nifty and Bank Nifty started strong with big gap-ups. However, they quickly turned around. Nifty hit a resistance zone and then dropped, entering a sideways correction, as highlighted by Elliott Wave analysis. Recent financial updates show the USD/JPY close to 158.50 ahead of a Bank of Japan rate decision, expected to stay at 0.75%. Japan’s national CPI rose by 2.1% year-on-year in December, and New Zealand’s NZD/USD climbed above 0.5900 due to higher-than-expected inflation.

Market Insights Overview

More market insights reveal that EUR/USD is focused on 1.1800, while GBP/USD is around 1.3500 due to ongoing USD selling. Gold continues to break records, now exceeding $4,950. The Bank of Japan is likely to maintain steady rates, with markets on the lookout for hints of future tightening actions. FXStreet, the source of this information, states that the content is for informational purposes and encourages thorough research before making investment decisions. This article is not investment advice and does not take responsibility for any financial losses or damages from using the information. The sharp change in the Nifty after briefly crossing 25,435 serves as an important warning. A market that opens with a big gap up but ends near its low indicates that sellers are outnumbering buyers at higher prices. This behavior could signal an exhaustion of the current uptrend. This rise in uncertainty is backed by the India VIX, which has jumped over 35% in the past week, now trading above 19, a level not seen consistently since late 2025. This increase means the cost of options, or insurance, is rising quickly as traders expect greater price fluctuations. Traders should be cautious about holding unhedged long positions.

Derivatives Trading Strategy

In this environment, derivative traders might explore strategies that benefit from a range-bound or declining market. Bear call spreads above the strong resistance at 25,500 could provide a defined-risk approach to take advantage of the potential market ceiling. This strategy gains from both a drop in the Nifty and time decay. The selling pressure seems to be driven by institutional players, with recent data indicating that Foreign Institutional Investors (FIIs) have sold over ₹8,500 crore in the cash market this week. This is a notable shift from the strong buying we saw in the last quarter of 2025. We must acknowledge this change in institutional activity. Options data reinforces this cautious view, showing a significant rise in open interest for call options at the 25,500 and 25,600 strike prices. This concentration of calls serves as a strong barrier to any further upward movement in the near term, indicating a period of consolidation or correction rather than continued gains. While we focus on domestic trends, we cannot ignore global factors, especially the upcoming Bank of Japan policy meeting. Any unexpected hawkish stance from the BoJ could strengthen the yen and spark risk aversion across Asian markets. This could intensify the corrective trends we are already seeing here at home. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now