Technical Analysis

Daily Rupee call: Tread with caution as rupee is range bound

Akhil Nallamuthu BL Research Bureau | Updated on January 01, 2020 Published on January 01, 2020

The rupee (INR) ended yesterday’s session lower at 71.38 versus its previous day close of 71.31 against the dollar (USD). The Indian currency gained initially and after making an intraday high of 71.23, declined for the rest of the session. This was despite a drop in one-year forward spread of USDINR. Recently, the spread has been fluctuating between 303 and 313 points.

Closing the calendar year at 71.38, the rupee has lost 2.3 per cent against the dollar for the year. Comparing with other major currencies, the domestic currency lost 0.23 per cent against the euro, lost 5.97 per cent against British pound and lost 3.45 per cent against Japanese yen. Notably, barring South Korean won, the rupee was the weakest currency in 2019.

Technically, the support at 71.4 is strong and until the local currency stays above that level, further depreciation is less likely. But as we can spot in the daily chart, the exchange rate of USDINR currency pair has been oscillating between 71.2 and 71.4 for the past few trading sessions. This means, unless the exchange rate moves out of this range, it cannot be expected to establish a trend.

Balance of Payments (BoP)

On Tuesday, the Reserve Bank of India (RBI) released the Balance of Payments (BoP) data for the second quarter of 2019-20. According to the statement, the Current Account Deficit (CAD) narrowed to $6.3 billion in Q2 of 2019-20 compared to $19 billion in Q2 of 2018-19. It narrowed on sequential basis too as CAD stood at $14.2 billion in the last quarter.

It also improved as a percentage GDP as CAD has dropped to 0.9 per cent of GDP in Q2 of 2019-20 against 2.9 per cent that was recorded during the comparative period last year. The contraction in CAD was primarily driven by trade deficit, its largest component. Trade deficit for the period narrowed to $38.1 billion versus $50 billion dollar a year ago. Improving BoP is a positive factor for the rupee.

Core industries output

Ministry of commerce released yesterday the data showing the performance of eight core sectors. The core sector output contracted for fourth consecutive month. The growth rate stood at negative 1.5 per cent in November 2019 compared to positive 3.3 per cent in November 2018. However, on sequential basis there seems to be an improvement as the growth rate was negative 5.8 per cent in October 2019. The weak industrial output can have a negative sentiment on the currency market, weighing on the rupee.

Dollar index

The dollar continues to witness selling pressure and as a result the dollar index closed with a loss for four sessions in row. On Tuesday, the index closed at 96.53, below the support at 96.7. But the index has rebounded sharply today and is trading slightly above the crucial level of 97. On further appreciation, it will face resistance at 97.2, above which it could rally to 97.75, weighing on rupee. On the other hand, if the index starts to decline, it will most likely retest previous low at 96.5 levels.

Trade strategy

The exchange rate of USDINR seems to be stuck between the two important levels at 71.2 and 71.4. Such a market environment is not conducive for intraday and short-term trades. Thus, traders are recommended to stay on the fence until the rupee decisively breaches either of these levels.

Supports: 71.4 and 71.6

Resistances: 71.2 and 71

Published on January 01, 2020
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