The border tensions with China unleashed a wave of selling that led to a sharp decline in the domestic market yesterday. The rupee (INR), too, came under pressure losing about 0.3 per cent – 22 paise – against the dollar (USD), ending the day at 73.62after making an intraday high of 73.28.

Today, INR has opened higher at 73.22. The local currency seems to have picked up momentum on the back of the positive opening, where it has now risen to 73.1. It has rallied past the minor resistance at 73.15, and it will most likely head to the important level of 73. A breakout of this level can intensify the rally, possibly taking the exchange rate to 72.75 and possibly to 72.55. But since 73 is a substantial resistance, the rupee might possibly witness a correction. Below 73.15, it can find supports at 73.4 and 73.5.

Foreign Portfolio Investors (FPI), who were strong buyers recently, sold heavily on Monday. The net outflow yesterday was ₹3,395 crore (equity and debt combined). While this might not be an indication of a reversal in the FPI buying trend, one needs to cautious as FPI selling can considerably impact rupee.

GDP slumps

The government yesterday released the GDP growth data for the first quarter of FY20. The lockdown impact was hugely felt as the growth contracted by significant 23.9 per cent – the largest quarterly contraction ever. India is the worst hit among the major economies.

Also, the core sector output numbers were also released yesterday. Shrinking by 9.6 per cent in July, it was the fifth consecutive monthly contraction. However, it has been improving over the last four months as the contraction looks to be coming down. The contraction in April, May and June was recorded at 37.9 per cent, 22 per cent and 12.9 per cent, respectively. The weak numbers can have an impact on the currency market sentiment as well.

Dollar index

After closing yesterday’s session on a flat note, the dollar index seems to be witnessing fresh bout of selling as it has breached the important support of 92 today. Currently trading at 91.8 – the fresh low in over two years – the index is likely to weaken further. The nearest support can be seen at 91.4 and 91. The dollar bears seems to have started the next leg of the down trend and this can help rupee to stay afloat against the greenback.

Trade strategy

Despite witnessing weak set of macroeconomic numbers, the weakness in dollar is a favourable condition for the rupee. However, 73 can be a strong resistance for the domestic currency to breach and there can be higher volatility at this level. Considering the risk-reward factor, short positions look favourable at current levels. So, traders can short rupee with stop-loss at 73. Stick to the stop-loss strictly as a breach of 73 can result in sharp rupee rally.

Supports: 73.4 and 73.5

Resistances: 73 and 72.75

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