The rupee (INR) has breached the critical resistance at 71 and closed the session at 70.92 against the dollar (USD), increasing the chances for further appreciation. Thus, month-to-date, the local currency has gained a little over one per cent against the dollar.

On the back of prevailing bullish sentiment, the rupee will most likely advance to 70.75. Above that level, there is a resistance band between 70.35 and 70.5. On the other hand, if the rupee declines from current level, 71 will act as a strong support. Below that level, it has support at 71.2 and 71.4.

The dollar index was unable to breach the resistance at 97.67 and it has been declining for past two trading sessions. Currently trading at 97.48, it has support at 97.4, below which it could slip towards the important level at 97. On the upside, 98 will be the resistance above 97.67.

Though the rupee is displaying bullish momentum and the dollar index is treading with a bearish bias, the spread of USDINR currency pair in the forward market calls for caution. For the past few trading session the forward points i.e. spread for the pair has been increasing. This means, in forward market, the dollar is not trading as weak as it trades in the spot market. This increase in demand of the dollar forwards could weigh on the domestic currency.

Trade strategy:

In today’s session, INR has opened marginally higher at 70.83 versus its previous close of 70.92. The price action of the USDINR currency pair and the dollar index is clearly indicating a bullish bias for the rupee.

However, increasing spread of the USDINR pair in the forward market is not so good for the local currency. Hence, long positions need to be monitored closely. For intraday, traders can be cautiously bullish and buy rupee on declines with tight stop-loss.

Supports: 71 and 71.2

Resistances: 70.75 and 70.5