Technical Analysis

Daily Rupee call: INR likely to appreciate

Akhil Nallamuthu | Updated on August 24, 2020

BL Research Bureau

The rupee (INR) wrapped up last week on a flat note as it closed on Friday at 74.85 versus its previous week’s close of 74.9 against the dollar (USD). Thus, the local currency managed to stay above the important support of 75. If INR appreciates from current levels, the nearest hurdle it will face is at 74.8 and then 74.7. A breach of 74.7 can result in sharp rupee rally. But if the rupee weakens, 75 will be a critical base. A break below this level can intensify the downtrend. While 75.1 can be minor support, the exchange rate of USD-INR might move to 75.3 on a slip below 75.

The stable fund flows from the Foreign Portfolio Investors look intact. For the current month so far, the net inflow stands at ₹44,679 crore (equity and debt combined) as per the data of National Securities Depository Limited (NSDL). This is the highest monthly net inflow since March 2019. Notably, the equity segment remains the FPI favourite as it has attracted a net inflow of ₹40,262 crore in August. The substantial inflow has been helping the rupee, and if it continues to occur, the domestic unit will be trading with a positive bias versus the greenback.

Foreign reserves

For the first time after several weeks, there has been a dip in the total foreign reserves on a weekly basis. As per the weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday, the total FX reserves declined to $535.3 billion as on 14th August i.e. it has come down by $2.9 billion between August 7 and 14. Foreign Currency Assets (FCA), the largest component of the reserves, dipped by about $0.7 billion to $491.6 billion from $492.3 billion during the corresponding period. The value of gold holding took a hit as it saw a considerable decrease of $2.2 billion to $37.6 billion. Despite the reduction, the reserves are at high levels.

Dollar index

The dollar index closed last week marginally higher at 93.25 versus preceding week’s close of 93.1. However, it remains below the key barrier of 94. The index has begun this week on a flat note and is currently testing the 21-day moving average. Nevertheless, it should breach 94 to establish a sustainable rally. Until then, the bias will be bearish, given that the overall direction is a downtrend.

Trade strategy

The rupee is hovering around 74.9, which is a support. That is, the price area between 74.9 and 75 can be a support band. This along with the fact that the risk-reward is favourable for long positions, traders can initiate fresh rupee longs in declines for intraday with stop-loss at 75.1.

Supports: 74.9 and 75

Resistances: 74.8 and 74.7

Published on August 24, 2020

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