Technical Analysis

Daily Rupee call: Buy with stop loss at 71.6

Akhil Nallamuthu, BL Research Bureau | Updated on December 30, 2019 Published on December 30, 2019

The rupee (INR) began the session on Friday at 71.3 against the dollar (USD). But after registering an intraday high of 71.19, the local currency weakened and ended the week at 71.35. The rupee has been the weakest Asian currency in the past week. This is despite the one-year forward spread of USDINR stabilising around 310 points and weakening dollar index.

Though the price action indicates a bearish bias, 71.4 is a considerable support for the Indian currency. Also, the 50 per cent Fibonacci retracement level of the prior trend is at 71.38, making the price level a significant support. Thus, the rupee might start its deceleration at current levels. If the local currency strengthens on the back of the support at 71.4, it will face hurdles at 71.2 and 71. On the other hand, if the support is breached, the subsequent support is at 71.6.

Foreign reserves:

The foreign reserves in RBI’s kitty continues it trend to go up. The weekly statistical supplement released by the RBI on Friday showed that the total foreign reserves has gone up by $0.45 billion over the previous week. The total reserves increased to a new all-time high of $454.94 billion from $454.49 billion. Foreign Currency Assets (FCA), the largest component of the reserves went marginally up by $0.31 billion to $422.73 billion from $422.42 in the same period. Also, the value of gold holdings saw a slight increase to $27.13 billion from $26.96 billion. Though the magnitude of increase is not very substantial, the increasing foreign reserves would help RBI in stabilising the rupee against abnormal movement if any.

Dollar index:

The dollar index witnessed a huge fall on Friday where it closed below the support of 97.2, opening the door for further weakness. The 50-day moving average seems to be acting as a strong resistance. The immediate support is at 96.7, below which the sell-off could intensify. Alternatively, if the index starts to appreciate from current levels, it will face a resistance band between 97.8 and 98.

Trade strategy:

Though the rupee is trading with a negative bias, fresh short positions are not recommended at current levels as 71.4 is a strong support. Moreover, the dollar seems to be facing selling pressure. Hence, traders are advised to initiate rupee longs on declines with 71.6 as stop loss.

Supports: 71.4 and 71.6

Resistances: 71.2 and 71

 

Published on December 30, 2019
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