Technical Analysis

Daily Rupee call: INR facing a roadblock at 73.7

Akhil Nallamuthu | Updated on October 26, 2020 Published on October 26, 2020

Trade with a tight stop-loss since a breakout of 73.7 can result in a sharp rally in the rupee

BL Research Bureau

The Indian rupee (INR), which was flat during the first half of last week, weakened in the latter half and ended with a loss of 0.35 per cent for the past week against the US dollar (USD), i.e., it closed at 73.6 versus the preceding week’s close of 73.34. Thus, the rupee is down about 3.1 per cent year-to-date against the greenback.

Today, the domestic unit has begun the session lower at 73.77. If the decline from the last week extends, INR is likely to depreciate to 74. A breach of this level can drag the rupee to 74.2. But if the local currency strengthens and moves above the resistance of 73.7, it can face an immediate hindrance at 73.5. Subsequently, it can face a hurdle at 73.3.

The inflows from foreign portfolio investors (FPI) remain robust with major contribution from the equity market. For the current month, the net investments across all asset classes stands at ₹17,564 crore, according to the latest data of the National Securities Depository Limited (NSDL). Of this, equities remain the favourite destination with net inflow of ₹15,642 crore. If this inflows remain consistent, INR can gain some ground against the USD in the forthcoming sessions.

Foreign reserves

The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday shows that the total foreign reserves increased by $3.6 billion between October 9 and 16 to $555.1 billion. Foreign currency assets (FCA), the largest component of the reserves, was up by $3.5 billion to $512.3 billion during the corresponding period. The value of gold holdings was largely unchanged at $36.6 billion. The forex reserves have been steadily increasing and the huge reserves can come in handy in stabilising the exchange rate of USDINR. In that sense, it is positive for the Indian currency.

Dollar index

The dollar index, which marked a seven-week low of 92.47 last Wednesday, ended the week at 92.77, thereby losing nearly one per cent over the past week. The overall trend is bearish and the index has formed lower high and lower low in the daily chart, giving an affirmation for the bears that the momentum is in their favour. So, further decline is highly likely with nearest supports spotted at 92.25 and 92. A fall in the dollar index can be good for the rupee.

Trade strategy

The rupee, which ended on a weaker note last Friday, is trading below 73.7, which can now be a hurdle. As along as this level holds, the likelihood for a recovery is low. Hence, traders can short the rupee for intraday. Go with a tight stop-loss since a breakout of 73.7 can result in a sharp rally in the rupee.

Supports: 74 and 74.2

Resistances: 73.7 and 73.5

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Published on October 26, 2020
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