Daily rupee call: 73 holds the key

The rupee (INR) ended last week marginally higher at 72.97 versus the preceding week’s close of 73.06 against the dollar (USD). Today, it has opened at 72.95 and thus it is trading above the important level of 73. Appreciation from here can take the domestic currency to 72.75 – its nearest resistance. The subsequent resistance is at 72.50. But if INR slips below 73, it can weaken to 73.15. Support below this level is at 73.25.

The Indian currency has been supported well by foreign inflows. According to data from National Securities Depository Ltd (NSDL), the net investments of foreign portfolio investors (FPI) stands at ₹18,440 crore for the month so far. Notably though, only equity has positive inflows (net inflow of ₹24,469 crore) whereas debt and hybrid segments have seen net outflows. Nevertheless, as long as the overall money flow is positive, it can help the rupee gain ground against the dollar.

Data shows that the foreign reserves held by the Reserve Bank of India (RBI) is at $584.2 billion as on January 15, 2021. This has gone down by $1.8 billion over the preceding week. However, total reserves are near an all-time high and this is a positive factor for the local currency.

Dollar index

The dollar index closed with a loss last week, as the rally was blocked by the resistance band of 90.80 and 91 and it fell subsequently. As a result, it wrapped up the week at 90.24 versus the preceding week’s close of 90.77. The overall trend remains bearish and as long as it trades below 91, the likelihood of a recovery will be low. Today, after opening flat, it is trading near 90.15. While the nearest support is 90, a breach of this level can further drag the index down to 89.80 and 89.50 and this can be positive for the Indian currency.

Trade strategy

The rupee, after closing marginally above 73 last week, managed to open above this level, retaining the upward bias. If it can sustain above 73, a leg up can be expected from current levels. Supporting this, the dollar index hints at a possible decline in the dollar. Given these factors, traders can be cautiously bullish for the day and buy INR with tight stop-loss.

Supports: 73.00 and 73.15

Resistances: 72.75 and 72.50