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BL Research Bureau
The Indian rupee (INR) that rallied initially last week, made a high of 74.5 on Wednesday against the US dollar (USD). However, it softened during the latter part of the week and closed at 74.88 on Friday, thereby posting a marginal gain.
Beginning on a positive note for the week, the local currency might be attempting to move forward as it continues to remain above the critical support of 75. On the other hand, 74.5 can be a considerable roadblock. A breakout of this level can invite more bulls into the game, possibly taking the exchange rate to 74.35 and maybe to 74 over the week. However, if the rupee breaches the support at 75, it might weaken to 75.10 and then to 75.3.
Foreign portfolio investors (FPIs) pumped in significant money during the week-ended last Friday, because of which the net outflow for July now stands at ₹151 crore (equity and debt combined) compared to the net outflow of nearly ₹9,000 crore the week before. This had helped the local currency stay above the crucial level of 75. If such large inflows continue, the rupee can move above 74.5.
Foreign reserves
Along with the FPI data, the foreign reserves hit a fresh lifetime high to $517.6 billion. The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday showed that foreign reserves increased between July 10 and July 17. The total reserves went up by nearly $1.3 billion, i.e. it increased to $517.6 billion from $516.3 billion. Foreign Currency Assets (FCA), the largest component of the reserves, was up $1.2 billion to $476.8 billion from $475.6 billion during the period under consideration. The value of gold holdings largely remained the same, at $34.7 billion.
Dollar index
The dollar index marked a fresh 52-week low of 94.33 last week, before wrapping up the week at 94.43 on Friday. With that, the index has posted a loss for five weeks in a row and the loss keeps expanding every week, indicating a strong downward momentum. Currently trading at 93.95, it is trading just above the two-year low of 93.81. Since the price action looks bearish, it is highly likely that the index will continue to make fresh lows. A decline in the dollar index can be positive for the rupee.
Trade strategy
The dollar looks weak and the rupee is managing to remain above the crucial level of 75. As long as it stays so, it can trade with a bullish bias. But since 74.65 can be a minor resistance, buy INR with tight stop-loss if it rallies past 74.65.
Supports: 74.85 and 75
Resistances: 74.5 and 74.35