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The rupee (INR) weakened through the last week and declined about 0.7 per cent against the dollar (USD) as it ended at 74.11 i.e. below the support of 74. This means that the domestic currency can trade with a bearish bias.
Today, the rupee has opened considerably lower at 74.42. Notably, 74.4 is a support level. If this level is decisively breached, it can possibly fall to 74.6. Subsequent support can be 74.8. But if the local currency attempts to recover, 74.2 can be a hurdle. A breakout of that can take the rupee to 74 – a key barrier. Above this level, 73.85 can be the resistance.
October witnessed considerable inflows from foreign portfolio investors (FPI). The net investments, including all asset classes, were recorded at Rs 21,826 crore, according to data from the National Securities Depository Ltd (NSDL). The equities, with a net inflow of Rs 19,541 crore, remained the largest recipient. Going forward, inflows would depend upon the outcome of the US election. If the current trend of inflows continues, it can help the rupee gain.
Foreign reserves
The weekly statistical supplement released by the Reserve Bank of India last Friday shows that the total foreign reserves have hit record levels. It increased by a substantial $5.4 billion between October 16 and 23 to $560.5 billion. Foreign Currency Assets (FCA), the largest component of the reserves, was up by $5.2 billion to $515.4 billion during the corresponding period. The value of gold holdings was largely unchanged at $36.8 billion. Increasing foreign reserves is a positive sign for the Indian currency, as it can be used as a effective tool in keeping the exchange rate of the USDINR stable.
Dollar index
The dollar index gained by nearly 1.4 per cent last week and, as a result, it closed slightly above the crucial level of 94. It is also above both the 21- and 50-day moving averages. Today, the index has opened at 94.09 and is currently hovering at 94.15. If it can sustain above the 94-level, it can possibly establish a sustainable rally, at least in the short term. But if it slips back below 94, it can result in a considerable decline.
Trade strategy
The rupee has opened lower today and the dollar index is hinting at a potential short-term rally in the greenback. Moreover, INR is trading below the key level of 74 – a bearish indication. Considering this, traders can short INR on intraday rallies with a stop-loss at 74.2.
Supports: 74.6 and 74.8
Resistances: 74.2 and 74
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