BL Research Bureau

The rupee (INR) closed at more than five-month high of 74.32 against the dollar (USD) on Monday. This means that INR has breached a critical level of 74.5. The rupee gained about 0.7 per cent yesterday, and thus the year-to-date loss has dropped to 4.1 per cent.

Today, the local currency has opened with a gap-up at 74.17, carrying over yesterday’s positive sentiment. From the current level, the notable supports for the domestic currency are at 74.35 and 74.5. The likelihood of INR retracting below 74.5 in the near-term is very low, and the currency is likely to trade with a positive bias. On appreciation, the rupee will face hurdle at the resistance level of 74. Subsequent resistance is at 73.73.

Foreign Portfolio Investors (FPI) have been significantly contributing to the rupee appreciation. They have bought a considerable amount of domestic assets, especially equities this month. Continuing with that, they remained net buyers on Monday. The net inflow stood at nearly ₹220 crore (equity and debt combined). So long as the inflows are healthy, it can consistently apply upward pressure on the Indian currency.

Dollar index

The dollar index was mostly flat yesterday and was trading around the 21-day moving average around 93.15. Since the overall trend is bearish and the index stays below the key resistance of 94, it is likely to resume its downward path. The nearest support levels are 92.5 and 92.15. A decline in the dollar index is positive for the rupee.

Trade strategy

The rupee has begun today’s session on the front foot with a gap-up open. The price action indicates a positive bias and INR might not slip below 74.5 in the short-run. However, since the up-move has been rapid, it is natural to witness a minor correction or a short-term consolidation. So, traders should tread with caution as the currency can be range-bound today.

Supports: 74.35 and 74.5

Resistances: 74 and 73.73

Related Topics