Royal Bank of Scotland - "USDINR has been trading in a narrow range for the past two months in the absence of a catalyst. However, if the government steps up reforms – and the move yesterday to partially deregulate domestic diesel pricing should be taken as a positive signal – the pair could see downward momentum build. Indeed, if the moves can allay fears of a ratings downgrade, it may lead to increased offshore capital inflow – inflows that are crucial to the INR: India needs some USD 300mn a day, every trading day of the year to simply cover its current account shortfall.
On USDJPY, the move higher has been steady and underpinned by a market which played topside trading using RKOs, window barriers and (ratio) call spreads – which in many cases failed to capture the extent of the move. The result was that the view was right but the trade was expressed in the wrong way. That's left the market eager to buy USDJPY on dips, we think – a crucial factor strengthening the logic of this dual digital.
Here are the trade details. Note that the Dual Digital is a considerably cheaper play than the individual digitals.
Entry: 10% of USD payout; payout if USD/INR is below 52.50 and USDJPY is above 92 at expiry
[USDJPY spot 89.83; USDINR 3m NDF 55.18]
Payout Ratio: 5x"