**Expectations for US Interest Rate Cuts** Technical analysis shows USD/INR trading at 90.2085, remaining above the 20-day EMA. The overall uptrend is still in place, but the RSI at 53 indicates that momentum has slowed. The US Dollar is the official currency of the US and makes up over 88% of global foreign exchange transactions. Decisions from the Federal Reserve and changes in Quantitative Easing can have a big impact on its value. As of today, there’s a tug-of-war in the USD/INR pair, creating chances for derivative traders during the quiet holiday weeks ahead. Foreign Institutional Investors (FIIs) are selling Indian stocks aggressively, pushing the pair higher toward 90.20. This selling is happening even though the US Dollar is generally weak due to expected Federal Reserve rate cuts in 2026. **The Scale of FII Selling** The level of FII selling is substantial and shouldn’t be taken lightly. This month alone, they have sold shares worth over Rs. 22,109 crore, contributing to a net outflow of over $15 billion from Indian equities in 2025. We can remember similar times of heavy FII selling in 2022, which consistently drove the rupee down, despite efforts from the central bank. Meanwhile, the US Dollar Index is at an 11-week low of around 97.75, a significant drop from the highs above 106 earlier this year. This weakness is due to markets anticipating at least two interest rate cuts from the US Federal Reserve in 2026, a belief that has remained strong even with a solid Q3 GDP growth of 4.3% in the US. This global environment suggests that any major increase in USD/INR will face serious challenges. Actions from the Reserve Bank of India are also crucial for options traders. Their recent move in the spot market, along with a $10 billion buy-sell swap, has helped lower forward premiums. This shows the RBI’s commitment to reducing excessive volatility and may limit the upside, making it worthwhile to consider selling out-of-the-money call options for the January expiry. With anticipated low market liquidity between Christmas and New Year, any unexpected news could lead to sharp price movements. Therefore, traders might think about strategies that benefit from increased volatility, such as a long straddle, as we approach January. This strategy allows them to take advantage of significant moves in either direction when full market participation returns. Create your live VT Markets account and start trading now.

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