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Last Friday, the Indian currency (INR) ended the session at 71.33 versus previous week’s close of 71.08, losing 0.35 per cent against the dollar (USD). Thus, the rupee closed with a loss for second consecutive week.
Since the recent trend has been bearish, the rupee might weaken below the important level of 71.4, where the 50 per cent Fibonacci retracement of the previous uptrend coincides. A break below that level can drag the local currency to 71.6. On the other hand, if the local currency reverses the trend it will face the first hurdle at 71.24. Above that level, it can appreciate to 71.
Foreign reserves:
The Indian foreign reserves increased during the past week to all-time high. The weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday showed that the total foreign reserves has gone up by $0.95 billion over the previous week. The total reserves increased to $462.15 billion from $461.21 billion. Foreign Currency Assets (FCA), the largest component of the reserves went up by $0.87 billion to $428.45 billion from $427.58 in the same period. The value of gold holdings was largely unchanged at $28.56 billion compared to previous week’s $28.49 billion. High foreign reserves give RBI the fire power to manage unexpected volatility in the exchange rate of USDINR.
Dollar index:
The dollar index rallied towards the end of last week and closed at 97.85. Thereby, the index has closed with a gain for three weeks in a row. The strengthening dollar index can weigh on the rupee. On the upside, the index faces a hindrance at 98, beyond which it can rise to 98.45. If the index declines, 97.7 will act as a good support.
Trade strategy:
The rupee has been on a decline for the past two weeks and the selling pressure seems to prevail. In today’s session, the domestic currency has opened below the support of 71.4 and chances of further decline looks high. Also, the rising dollar index denotes the demand for dollar, adding to the woes. Thus, traders can short rupee on rallies with stop-loss at 71.2
Supports: 71.6 and 71.85
Resistances: 71.24 and 71
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