Forex

Rupee opens lower, but likely to appreciate

Akhil Nallamuthu BL Research Bureau | Updated on December 21, 2020 Published on December 21, 2020

INR opens with a considerable gap-down at 73.75 against USD

The rupee (INR) closed last week marginally higher – 73.57 versus its previous close of 73.65 against the dollar (USD). Thus, the domestic currency continues to tread along a sideways path with its borders being 73.50 and 73.85. This means the rupee should breach either of these levels to get a clue of the direction of the next leg of trend.

Today, INR opened with a considerable gap-down at 73.75 against USD. If the weakness persists and the local currency slips below the support at 73.85, it can quickly drop to 74 – a key support level. A breach of this level can intensify the sell-off. Support below 74 can be seen at 74.20. But if the local currency recoups its losses and moves up, it can face a roadblock at 73.50. Subsequent resistance levels are at 73.15 and 73.

Foreign portfolio investors (FPI) continue to pour in money into the domestic market, which has been witnessing large foreign inflows over the past few months. So far, in December, net investments stands at ₹55,133 crore (debt and equity combined). Of this, the equity continues to be the major destination with net inflow of ₹48,858 crore. This has been aiding rupee to stay afloat against the greenback.

Foreign reserves

The latest data by the Reserve Bank of India (RBI) show that the total foreign reserves stands at $578.6 billion (as on December 11). This has not changed much compared to the preceding week. Nevertheless, Foreign Currency Assets (FCA), the largest component of the reserves, was down by about $1 billion to $536.3 billion in the corresponding period. But the value of gold holding was largely unchanged at $36 billion. Whatsoever, the total reserves is at record highs and huge amount of forex holding is positive for the rupee.

Dollar index

Over the past week, the dollar index lost about 1 per cent and wrapped up the past week at 90.02 versus preceding week’s close of 90.98, affirming the bearish bias. However, today, it has been appreciating since morning and is currently testing the resistance at 90.50. But since the major trend is bearish, the index breaching the resistance at 90.50 is less likely.

Even if it breaks out of this level, it will face a major hurdle at 91, where 21-day moving average coincides. So, the bears can hit back anytime and the nearest supports from the current level are at 90 and 89.40

Trade strategy

Though the rupee opened the session on a weak note, it has a significant support at 73.85. Also, the dollar index is currently trading near a resistance level. Considering these factors, traders can take positive view on the Indian currency – buy INR for intraday with a tight stop-loss.

Supports: 73.70 and 73.85

Resistances: 73.50 and 73.15

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Published on December 21, 2020
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