Daily Rupee call: Initiate long position with 71.2 as a stop-loss

BL Research Bureau

The rupee (INR), on Wednesday, managed to close above the support of 71 against the dollar (USD) after briefly trading below it. After registering an intraday low of 71.12, it ended the session at 70.97.

Noticeably, the one-year forward spread of USDINR currency pair is 309 points as on yesterday’s session close. It has been increasing at a considerable pace since the beginning of the month from 270 odd levels. Increasing forward spread indicates rising demand for the dollar in the forward market, which will weigh on the local currency. However, in the spot market, the rupee continues to hold on to the support of 71 despite a spike in the spread.

Hence, unless the rupee breaks below 71, the declines cannot be considered as a trend reversal. If it gains from the current level, it will face a hurdle at 70.75, beyond which the resistance is at 70.5. But, a decisive break below 71 can trigger a sell-off in the domestic currency. Thus, 71 is the key level to watch for.

In the last couple of trading sessions, the dollar has been gaining against other major currencies as well; as a result, the dollar index gained. However, it could not break above the resistance at 97, and it is currently trading at 96.89. Until it breaches 97, the index can be viewed with a negative bias. On the downside, there is a support band between 96.35 and 96.5.

Trade strategy:

On Thursday, the rupee has opened at 70.99 against the previous close of 70.97. As the rupee manages to stay above the support at 71 and the dollar index is facing resistance, the likelihood of the local currency gaining today is more. Hence, traders can initiate rupee longs with 71.2 as a stop-loss.

Supports: 71.2 and 71.4

Resistances: 70.75 and 70.5