Technical Analysis

Daily Rupee call: The dollar's strength likely to drag INR lower

Akhil Nallamuthu | Updated on January 11, 2021

BL Research Bureau

The rupee (INR) dropped considerably and settled last week lower by 12 paise as it ended at 73.24 versus preceding week’s close of 73.12 against the dollar (USD). Over the past couple of weeks, the attempt by the rupee bulls to lift it above the resistance of 73 has gone in vain, and it continues to face selling pressure whenever INR nears that level.

Even today, the downward pressure has led to a gap-down open at 73.47. Since the price area of 73.40 and 73.50 is a good support band, the sell-off might see a temporary pause. If the rupee can bounce on the back of this support, it can face hindrances at 73.25 and 73.15. But if the bears drag down the domestic currency below the support band, it is likely to see a quick fall towards the support at 73.65. Subsequent support is at 73.80.

The rupee lost ground last week despite strong foreign inflows. As per National Securities Depository Limited (NSDL) data, the net investments so far in the current month stands at a healthy ₹5,118. Equity remains the favourite spot for the foreign portfolio investors (FPI) as the net inflow into this segment stands at ₹4,819 crore. So, the depreciation of the rupee can be attributed to a strong dollar. This is an ever-changing dynamics and traders should keep a close watch on how it plays out going ahead.

On the positive side, the foreign reserves holding by the Reserve Bank of India (RBI) has hit new all-time record. The latest RBI data shows that the FX reserves stood at $585.3 billion dollar as on January 1, 2021 – an increase of nearly $5 billion from the preceding week. Should there be an increase in the USDINR exchange rate volatility, RBI can tap the reserves to curb the same.

Dollar index

The dollar index closed marginally higher at 90.10 last week as against the preceding close of 89.94. On the face of it, the index might not look positive. However, it recovered sharply after marking a low (in about two and half years) of 89.21.Tchart also shows signs of a recovery, i.e., at least a corrective rally if not a proper trend reversal. Following this, the dollar index has opened with a gap-up at 90.31 today, and it looks set to run up more. This can weigh on the Indian currency.

Trade strategy

Despite strong foreign flows, the rupee closed last week with a loss and apparently, it is trading with a bearish bias today with a gap-down open. Moreover, the dollar index is signalling a rally in the greenback. However, the rupee has a support band of 73.40 and 73.50. Given the circumstances, traders can stay away for now and initiate fresh short positions with stop-loss at 73.35 if INR slips below the support of 73.50.

Supports: 73.50 and 73.65

Resistances: 73.25 and 73.15

Published on January 11, 2021

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