Daily rupee call: Sharp fall in forex reserves shows mounting pressure on rupee

Akhil Nallamuthu | Updated on March 30, 2020

The rupee (INR) opened weaker against the dollar (USD) at 75.3 today versus 74.85, after posting a marginal gain last week. The local currency has a support at 75.3 and until it trades above that level, it can be bullish. But on the upside, 75 can act as a resistance. Below 75.3, the support is at 75.7 whereas above 75, the resistance is at 74.6.

For the calendar year, the rupee has dropped by about 5.2 per cent as the Foreign Portfolio Investors (FPIs) continued to sell heavily. The net outflow of FPIs for the year is a little over ₹1 lakh crore.

Foreign reserves

In its weekly statistical supplement released last Friday, RBI said total reserves have reduced considerably between March 13 and 20.

According to the report, reserves have decreased by nearly $12 billion i.e. total reserves are now $469.9 billion, down from $481.9 billion. This could be an indication that the central bank might have taken measures to curb a sharp decline in the rupee because it witnessed sharp selling pressure. Foreign Currency Assets (FCA), the largest component of the reserves, dropped by $10.2 billion to $437.1 billion from $447.3 in the same period. The value of gold holdings dropped to $27.9 billion, compared to the previous week’s $29.5 billion.

Dollar index

The dollar index declined sharply last week, losing 4.4 per cent. It has fallen below both 21- and 50-day moving averages, giving it a bearish bias. Currently trading at 98.7, the index is likely to fall towards the nearest support levels at 97.75 and 97.1. A decline in the dollar index shows reduced demand for dollar, which could be favourable for the Indian currency.

Trade strategy

Though the overall trend is bearish, the rupee has been gaining for the past few trading sessions. But today, it is trading between 75 and 75.3 and so one should wait until either of these levels is breached before initiating fresh positions. Hence, traders can either short rupee with tight stop-loss if it breaches 75.3 or buy rupee with tight stop-loss if it breaches 75.

Supports: 75.3 and 75.7

Resistances: 75 and 74.6

Published on March 30, 2020

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