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BL Research Bureau
The rupee (INR) strengthened marginally last week and ended 13 paise higher at 73.65 versus 73.78 against the dollar (USD). Thus, the support at 73.85 seems to be providing a good base for the Indian currency. But considering the price movement of the past week, the exchange rate of USDINR has largely been moving back and forth between 73.50 and 73.85. So, until the currency pair move out of this range, it cannot be expected to trend is a direction.
Today, the domestic currency has opened flat. If the rupee appreciates from the current level, it can face hindrance at 73.50, i.e. the upper limit of the band. A breach of this level can turn the outlook positive, and INR can rally to 73.15 and then potentially to 73.00. But if the local currency weakens from here and slips below the lower limit of the range at 73.85, it can depreciate to 74 – key support. Subsequent support can be spotted at 74.20.
Steady foreign inflows continue, and this has been a suitable catalyst for the rupee bulls. As per the data of the National Securities Depository Limited (NSDL) the net investments of the Foreign Portfolio Investors (FPI) across all segments for the month stands at ₹36,096 crore. Equities attracted the largest portion with a net inflow of ₹33,383 crore. As long as this trend continues, the rupee can remain steady against the greenback.
Foreign reserves
The total foreign reserves held by the Reserve Bank of India (RBI) has significantly gone up, i.e. by $4.5 billion and it now stands at $579.3 billion on December 11. The Foreign Currency Assets (FCA), the largest component of the reserves, was up by $3.9 billion to $537.3 billion. Also, the value of gold holding went up by $0.5 billion to $35.7 billion. Nevertheless, the total reserves are at record highs, and a huge amount of forex holding is positive for the rupee.
Dollar index
The dollar index has been trading in a sideways trend between 90.50 and 91.20 since past couple of weeks. Despite the overall trend being bearish, it cannot be expected to trend unless it moves out of this range. While support below 90.50 is at 90, resistance above 91.20 can be seen at 91.60 – its 21-day moving average.
Trade strategy
The rupee, after opening flat at 73.64 today, has been inching up and is now trading around 73.55. But since the domestic unit is trading in a range between 73.50 and 73.85, traders need to tread with caution. Consider going long with a tight stop-loss only if INR breaks out of 73.50.
Supports: 73.70 and 73.85
Resistances: 73.50 and 73.15
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