Daily Rupee call: Rupee likely to descend

Akhil Nallamuthu | Updated on May 26, 2020

The rupee (INR) posted a half per cent loss last week against the dollar (USD) as it ended the week at 75.95 versus the preceding week’s close of 75.57.

Today, the Indian currency opened at 75.69, about 0.35 per cent higher against Friday’s close. A further rally will face a hurdle at 75.6. This level is critical, a breakout of which can result in a sharp rally. But if the rupee weakens from the current level, the nearest supports are at 75.8 and 76.

Foreign Portfolio Investors (FPI) remain sellers for the current month as well, following substantial selling in the past two months, though the amount of selling has come down. According to the latest data by the National Securities Depository Ltd (NSDL), the net outflow of FPIs stands at ₹9,275 crore (equity and debt combined) so far this month. If this trend continues, the rupee could experience constant downward pressure.

Foreign reserves

The weekly statistical supplement released by the Reserve Bank of India last Friday showed that foreign reserves went up between May 8 and May 15. As per the report, the total reserves increased by $1.7 billion i.e. it increased to $487 billion from $485.3 billion. Foreign Currency Assets (FCA), the largest component of the reserves, increased by $1.1 billion to $448.6 billion from $447.5 billion. The value of gold holdings increased marginally to $32.9 billion, compared to the preceding week’s $32.3 billion. The build-up of reserves is a huge positive for the local currency given the amount of uncertainty, which poses the constant threat of a possible spike in sell-off.

Dollar index

The dollar index closed slightly lower last week at 99.86 versus its previous week close of 100.4. But the index has been in a sideways trend over the past two months, moving within 98.8 and 101. The consolidation phase is likely to be extended and the index should breach either of these levels to establish a trend.

Trade strategy

The currency pair have consolidated between 75.6 and 76 for the past few weeks. As the rupee is now trading near the resistance level, it is likely to slide lower. Hence, for intra-day, traders can sell the Indian unit with stop-loss at 75.5

Supports: 75.8 and 76

Resistances: 75.6 and 75.4

Published on May 26, 2020

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