Technical Analysis

Daily Rupee call: Short rupee with a tight stop-loss

Akhil Nallamuthu | Updated on March 23, 2020

BL Research Bureau

The rupee (INR) has opened today on a weaker note against the dollar (USD). The local currency has opened at 75.69 versus its previous close of 75.19; it soon hit a fresh lifetime low of 76.15 and is currently hovering around that level.

The selling pressure on the domestic unit seems to be significant as it continues to make new lows every day. A further decline from current levels is highly likely. On the upside, the band between 75.4 and 75.7 can act as a significant hurdle.

The net outflow of Foreign Portfolio Investments (FPI) for the current month is at ₹95,485 crore (equity and debt combined), according to the latest data by National Securities Depository Limited (NSDL). Year-to-date, FPIs have net sold ₹85,558 crore. The rupee can be under significant pressure if the FPIs continue to be net sellers.

Foreign reserves:

The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday showed that the foreign reserves have dropped during the period between 6th and 13th March. The reason could be the intervention of the central bank to contain a sharp decline of the Indian currency.

As per the report, the total reserves have decreased by $5.3 billion i.e. it dropped to $481.9 billion from $487.2 billion. Foreign Currency Assets (FCA), the major component of the reserves went down by $3.8 billion to $447.3 billion from $451.1 in the same period. The value of gold holdings declined to $29.5 billion compared to previous week’s $31 billion.

Dollar index:

The dollar index after registering a three-year high of 103 on Friday, has opened the week slightly lower at 102.5. It rallied strongly last week and posted a weekly gain of 4.3 per cent. If the index continues to rally and move above 103, it will retest its lifetime high at 103.8. But if it softens, it will find support at 102 and 101.

Trade strategy:

The rupee has been facing considerable selling pressure since the session open. But the RBI had announced a USD/INR Sell Buy Swap auction worth $2 billion to be held today between 9:30 AM and 11:00 AM. This can act as a temporary buffer for the domestic unit. Hence, the currency pair might witness high volatility today.

Traders must be cautious and can initiate fresh rupee short positions until it trades below 75.7; place a tight stop-loss.

Supports: 76.5 and 77

Resistances: 75.7 and 75.4

Published on March 23, 2020

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