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Though the dollar (USD) rallied during the first half of last week, it depreciated in the latter half and as a result the rupee (INR) that faced downward pressure early on last week, was able to recoup its losses. INR ended last week on a flat note at 73.54 versus the preceding week’s close of 73.57. This means the currency pair continues to oscillate within the price of 73.50 and 73.85.
Even today, the local currency opened flat at 73.51. Thus, INR is currently hovering at the resistance of 73.50. If this level is breached, the currency could find immediate resistance at 73.40. Nevertheless, the breakout can take the domestic currency past 73.40 and further lift it to 73.15. Above that level, resistance can be spotted at 73. On the other hand, if it falls on the back of the resistance at 73.50, the nearest support can be spotted at 73.70. Subsequent support is at 73.85.
Foreign flows have been supportive of the Indian currency in recent months. In December, the net foreign portfolio investors’ (FPI) inflows stood at ₹62,648 crore as per the latest data from the National Securities Depository Ltd (NSDL). If the positive trend continues this week as well, the rupee can make a considerable attempt to break out of 73.50.
Foreign reserves
The latest data by the Reserve Bank of India (RBI) shows that the total foreign reserves increased by $2.6 billion to $581.1 billion between December 18 and 25. Foreign Currency Assets (FCA), the largest component of reserves, was up by about $1.4 billion to $537.7 billion in the corresponding period. The value of gold holding as well increased by a billion dollars to $37 billion. The RBI has been maintaining a huge amount of dollars and this is positive for the rupee.
Dollar index
The dollar index, which rallied and touched the important level of 91, gave up its gains towards the end of the week. Yet, it gained over the week as it ended at 90.32 versus the previous week’s close of 90.02. However, the major trend is negative, and the uptrend cannot gain sustainable strength unless it takes out the resistance at 91. Until then, the rallies might be sold in. This can put an upward pressure on the Indian currency.
Trade strategy
The rupee has begun today’s session flat at 73.51. Therefore, it currently faces a strong hurdle at 73.50. Given that the risk-reward ratio favours rupee short positions, traders can sell INR with a stop-loss at 73.40 for intra-day.
Supports: 73.70 and 73.85
Resistances: 73.50 and 73.40
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