Technical Analysis

Daily Rupee call: Buy rupee on declines

Akhil Nallamuthu BL Research Bureau | Updated on December 13, 2019

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On Thursday, the rupee (INR) ended the session flat at 70.83 versus its previous close of 70.84 against the dollar (USD). As it sustains above 71, one can remain bullish on the domestic currency.

On further appreciation, it will face hindrance at the resistance band between 70.35 and 70.5. Above that level, it might test the critical level of 70. However, if the rupee witness profit booking and softens from current level, 71 will act as a solid support.

Inflation: The Consumer Price Index (CPI) data released on Thursday showed that inflation has gone up significantly. The CPI for the month of November 2019 came in at 5.54 per cent against 2.33 per cent for the same month previous year. This is also sequentially higher as the inflation for October 2019 was at 4.62 per cent. The increase is due to high vegetable inflation as it has shot up by nearly 36 per cent, as result of which the consumer food price index increased by around 10 per cent. The current level of inflation is substantially above the RBI targeted level and if it stays high for a considerable period, the resulting higher inflation differential between India and the US might work against the rupee.

Industrial production: The Index of Industrial Production (IIP) data was also released on Thursday. The index has contracted by 3.8 per cent in October 2019 compared to the level in October 2018. Thus, the factory production has contracted for three months in row. Along with high inflation, lower industrial production may instill negative sentiment for the market, in turn weighing on the domestic currency.

Dollar index: The dollar index broke below the key support at 97, opening the door for further decline. Now this level will act as a considerable resistance. The index is currently trading at 96.8 and the immediate support is the price band between 96.35 and 96.5. The fresh break down has resulted in a lower low in daily chart, a bearish indication.

Trade strategy: Today, the rupee has opened substantially higher at 70.52 against its previous close of 70.83 despite weak data. As the local currency continues to hold on to its positive momentum, further appreciation is highly likely. Hence, traders can buy rupee on declines with 70.9 as stop-loss.

Supports: 70.75 and 71

Resistances: 70.5 and 70.35

Published on December 13, 2019

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