Daily Rupee call: Rally can strengthen above 73.7

The rupee (INR) settled with 26 paise gain last week, as it ended at 73.78 versus it’s previous week’s close of 74.04 against the dollar. This confirms a close above the important level of 74, giving the local currency a bullish bias.

Today, the INR opened flat and remains to be above the support of 73.85. The price action since past couple of weeks has been exhibiting a positive bias and on the back of this, the rupee is likely to extend the rally in today’s session. While 73.70 is the nearest level, a breach of this level can lift INR to 73.50. Resistance above this level can be seen at 73.4. But if INR weakens and slips below 73.85, it can find support at 74 – a vital support.

The positive trend in foreign flows continues as December has witnessed a net investment of ₹18,005 crore by the foreign portfolio investors (FPI). Equity segment remains the favoured destination for the FPIs as it has recorded net inflow of ₹16,520 crore. Debt has attracted net inflow of ₹1,374 crore so far this month. This is a solid support for the rupee and unless the Reserve Bank of India buys dollar in the market, the FPI inflow can push up the rupee against the greenback.

Foreign reserves

The total foreign reserves held by the RBI was down marginally and it stood at $574.8 billion on December 4. Over the week, it dropped by about half a billion dollars. However, Foreign Currency Assets, the largest component of the reserves, was up by $0.3 billion to $533.4 billion. But the value of gold holding came down by $0.8 billion to $35.2 billion. Nevertheless, the total reserves is at record highs and huge amount of forex holding is positive for the rupee.

Dollar index

The dollar index closed last week with a loss of about 1.2 per cent as it ended the week at 90.70 versus the preceding week’s close of 91.79. Notably, it registered a two and a half years low of 90.48, indicating a strong sell trend. The index is likely to depreciate further and currently trading at 90.75, the immediate supports can be spotted at 90.5 and 90. A fall in dollar index means a weak dollar and as a result it can result in rupee gaining ground against USD.

Trade strategy

The rupee looks clearly bullish and this is corroborated by the weakness in dollar as indicated by the dollar index. However, 73.70 is a considerable resistance. Hence, traders can wait for now and buy INR if it rallies past the hurdle at 73.70 and place a tight stop-loss.

Supports: 73.85 and 74.00

Resistances: 73.70 and 73.50