Technical Analysis

Daily Rupee call: Initiate long on the break of 75

Akhil Nallamuthu BL Research Bureau | Updated on July 20, 2020

Posting a marginal gain, the rupee (INR) closed last week at 75.02 versus preceding week’s close of 75.2 against the dollar (USD). Following this, INR began today’s session higher at 74.93.

The local currency, which has been gaining over the past few days after taking support at 75.4, is now trading around the crucial level of 75. If the uptrend sustains, it can rally to 74.8, above which it might advance to 74.65. However, if the domestic unit weakens, the nearest support can be 75.15. Subsequent support is at 75.3.

The Foreign Portfolio Investors (FPI) continue to be net sellers in July. As per the latest National Securities Depository Limited (NSDL) data, the net outflow of FPIs for the month stands at a little over ₹9,000 crore (equity and debt combined). That is an increase in the net outflow by about ₹6,100 crore last week. If this continues to happen, the rupee is likely to face increased downward pressure.

Foreign reserves:

Even though FPI fund flow does not seem to be encouraging for the Indian unit, the foreign reserves data provides some relief as it hit a new all-time high of $516.3 billion. The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday showed that the foreign reserves increased between July 3 and 10. The total reserves went up by $3.1 billion to $516.3 billion from $513.2 billion whereas the Foreign Currency Assets (FCA), the largest component of the reserves, was up by $2.4 billion to $475.6 billion from $473.2 billion during the period under consideration. The value of gold holding increased by $0.7 billion to $34.7 billion.

Dollar index:

The dollar index recorded fourth consecutive week of loss as it declined by three-fourth of a per cent. It now hovers around the important level of 96. Since the price action is indicating a bearish bias, the index is likely to depreciate from current levels. Below 96, it might fall to 95.6 and may be to 95.15. A fall in dollar index can help rupee gain against the greenback.

Trade strategy:

The rupee appears bullish in the short-term and the dollar index is hinting at a weak demand for the dollar, which is a favourable situation for the Indian currency. However, 75 is a critical level. So, for intraday, traders can initiate rupee longs with a tight stop-loss if INR can sustain above 75.

Supports: 75.15 and 75.3

Resistances: 74.8 and 74.65

Published on July 20, 2020

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