Daily Rupee call: Sell with stop loss at 71.05

The Rupee (INR), after trading in a tight range between 71.1 and 71.2, closed at 71.27 against the dollar (USD) on Tuesday. Thus, the domestic currency has closed below the support at 71.2 on daily basis, instilling bearish bias.

Further weakness in rupee can take the USDINR exchange rate to 71.4, a reasonable support. Subsequent support for the local currency is at 71.6. On the other hand, if rupee strengthens from current level, 71.2 can act as a hurdle, above which it will face a stiff resistance at 71.

After spiking from 270 levels since the beginning of December, the one-year forward spread of the USDINR currency pair seems to have stabilised around 310 levels. This indicates a moderation in dollar demand in the forward market, a condition that could aid the Indian currency to stabilise. But a drop in spread might help rupee to reverse the bearish bias in the spot market.

The rally in the dollar index seems to be capped by a resistance band between at 97.8 and 98. As we can observe in the chart, the index is struggling to move past that level, increasing the possibility of a decline. This could work in favour of rupee. On the downside, the support for the index is at 97.2, below which the support is at 96.7. The immediate resistance above 98 is at 98.45.

Trade strategy:

From trading perspective, one can take a bearish view as rupee has closed below the support at 71.2. Hence, traders are recommended to initiate fresh rupee shorts on rallies with 71.05 as stop loss.

Supports: 71.4 and 71.6

Resistances: 71.2 and 71

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