Technical Analysis

Daily Rupee call: 76 holds the key

Akhil Nallamuthu BL Research Bureau | Updated on May 18, 2020

The rupee (INR) has witnessed a gap-down open today against the dollar (USD) as it has begun the session at 75.85 versus Friday’s close of 75.57. The immediate support is at 76 – an important level. A break below that level can invite more bears weighing on the domestic currency.

Last week, INR posted a loss of 0.6 per cent versus USD; currently trading around 75.9, the year-to-date loss stands at about 6.3 per cent. The rupee experienced downward pressure last week as the Foreign Portfolio Investments (FPI) sold domestic assets significantly. The net flow has become negative ₹989 crore (equity and debt combined) by the end of last week compared to positive ₹15,940 crore by the end of the preceding week. Going ahead, if the FPIs continue to liquidate, the rupee might see more to the downside.

Deficit shrinks:

The government data released on Friday showed that the trade deficit has narrowed in April 2020 to $6.76 billion compared to $15.33 billion in April 2019. Exports dropped to $10.36 billion from $26.07 billion a year earlier whereas imports dropped to $17.12 billion from $41.4 billion during the corresponding period. Similarly, the deficit came down on sequential basis too where it was $9.76 billion in March 2020. A shrinking trade deficit is clearly positive for the rupee.

Foreign reserves:

The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday showed that the foreign reserves went up between May 1 and May 8. As per the report, the total reserves increased by $4.2 billion i.e. it increased to $485.3 billion from $481.1 billion. Foreign Currency Assets (FCA), the largest component of the reserves, increased by $4.2 billion to $447.5 billion from $443.3 billion. The value of gold holding was largely unchanged at $32.3 billion.

Dollar index:

The dollar index closed with a marginal gain of about 0.7 per cent last week, as it closed at 100.4. Thus, the index continues to remain above 100; however, it continues to oscillate between 98.8 and 101. Hence, the next leg of trend will be uncertain until the index breaches either of these levels.

Trade strategy:

While the deficit number can be a favouring factor for the rupee, the selling trend of the FPI is not a good sign. Nevertheless, 76 can be a considerable support. So despite the Indian currency facing downward pressure, traders can initiate fresh short positions with tight stop-loss if it slips below 76.

Supports: 76 and 76.3

Resistances: 75.8 and 75.6

Published on May 18, 2020

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