Technical Analysis

Daily rupee call: Buy rupee on declines

Akhil Nallamuthu | Updated on March 02, 2020

The rupee (INR) registered a six-month low of 72.27 against the dollar (USD) on Friday. During the past week, the Indian currency has lost 0.75 per cent and the year-to-date loss against the dollar stands at one per cent. Barring the Indonesian rupiah, the rupee has been the weakest Asian currency in the past week.

The daily chart shows that the rupee has largely moved between 70.5 and 72.25 over the past seven months. Thus, last week’s closing price of 72.17 is near the support at 72.25.

The domestic currency has been under pressure since mid-January. If the weakness prevails and it slips below support at 72.25, the rupee might witness significant downward pressure. Major supports on the downside are at 72.46 and 72.9. But if the support at 72.25 manages to arrest the decline and consequently if the rupee advances, the price band between 71.88 and 72 can act as a considerable resistance band.

Foreign reserves

The Reserve Bank of India’s weekly statistical supplement released last Friday showed that total foreign reserves were little changed from the previous week at $476.1 billion. But Foreign Currency Assets (FCA), the largest component of the reserves, were marginally down at $441.4 billion, from $441.9 in the prior week. On the other hand, the value of gold holdings increased slightly to $29.6 billion as against $29.1 billion in the previous week.

Dollar index

The dollar index declined to close at 98.13 last week, just above the crucial support of 98. The 50-day moving average at 98 makes the support stronger. A solid break below 98 can turn the trend bearish. Support levels from the current market price are at 97.75 and 97.35.

Trade strategy

The rupee has been declining since the second week of January and the trend is clearly bearish. However, the local currency has strong support at 72.25, where it might witness short covering.

In today’s session, the rupee opened marginally higher at 72.07 versus its previous close of 72.17. For intraday, traders are recommended to buy rupee on declines, with stop-loss at 72.25

Supports: 72.25 and 72.46

Resistances: 72 and 71.88

Published on March 02, 2020

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