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The rupee (INR) gained yesterday, ending the session at 71.25 versus its previous close of 71.33 against the dollar. However, the domestic currency was unable to breach resistance at 71.2, where the 38.2 per cent Fibonacci retracement level of the recent downtrend coincides. Thus, that level is a considerable resistance and for the local currency to establish an uptrend, it should take out that level.
The price action in the daily chart seems to suggest that the Indian currency might weaken from current levels. On the downside, we can spot a support band between 71.5 and 71.6. On the other hand, if the rupee moves past the resistance at 71.2, the subsequent resistance is at the important level of 71.
Dollar index
The dollar index continues to gain above 98, extending the uptrend. The index will most likely advance towards the resistance at 98.45, above which the resistance is at 98.75. Alternatively, if the index reverses, the support level below 98 is at 97.7.
Trade strategy
The dollar index moving up and a slight uptick in the one-year forward spread of the USDINR currency pair to 303 points might be indications of dollar demand. These factors are expected to weigh on the Indian currency and so one can take a bearish view for intraday. Traders are thus advised to short rupee on rallies with stop-loss at 71.
Supports: 71.5 and 71.6
Resistances: 71.2 and 71
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