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The rupee (INR) traded in a lethargic fashion on Wednesday and the result was a flat close at 72.96 against the dollar (USD). So, the local currency continued to hover at the important level of 73.00 and is battling to establish a trend in either direction.
Today, it has opened on a flat note, indicating there is a clear lack of momentum. Currently trading at 72.90, the nearest resistance is at 72.80 and subsequently, it can face hindrance at 72.70. But if INR weakens from here, 73.00 can be a strong support. A breach of this level can drag the local currency to the support level 73.15. Ensuing support is at 73.25.
A big positive factor for INR now is the amount of foreign inflows that the domestic market is attracting. This is the reason it is able to stay steady even as the dollar has been gaining over the past week. In line with the recent trend, the foreign portfolio investors (FPIs) made net investments of ₹2,520 crore, thereby taking the net inflows for the week to over ₹10,000 crore. Continuation of inflows can put upward pressure on the rupee. Against this backdrop, if the dollar shows weakness, the exchange rate of USDINR can move sharply in favour of the domestic unit.
Dollar index
The dollar index, which has been appreciating over the past week, is able to sustain above the 91.00 level, which is now acting as a support. The 21-day moving average (DMA) is about to cross over the 50-DMA, potential indication of the shift in medium-term trend to bullish. Thus, the dollar looks to strengthen from here and so, the dollar index can touch 91.50 and possibly move towards 92.00 in the short term. Such a move can exert pressure on the rupee.
Trade strategy
The rupee has opened the session at 72.94, essentially remaining within the range of 72.80 and 73.15. For the Indian currency, strong dollar is being countered by significant foreign inflows and so, the likelihood of it staying flat or tracing a rectangular pattern is high.
Given the above factors, traders can wait for now and short INR with a tight stop-loss if the exchange rate reaches 72.85.
Supports: 73.00 and 73.15
Resistances: 72.80 and 72.70
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