With all the geopolitical tensions surrounding Russia and Ukraine one would expect the rupee (INR) to have taken a bad hit. Normally, one would be looking at havens like dollar (USD) and gold during such uncertainties. But interestingly, the Indian currency has gained over the past week. Although INR depreciated by nearly 0.5 per cent on Tuesday, closing at 74.8750 against USD, it is up by about 0.6 per cent compared to 75.3375 exactly a week back.

Market experts are citing the potential LIC initial public offering (IPO), which is expected to come in mid-March, as a reason which is drawing good inflows into the country. But the gain may be limited as the possibility of wild swing in either direction is expected to get the attention of the Reserve Bank of India. Interestingly, RBI has announced a two-year sell/buy US dollar/rupee swap auction worth $5 billion on March 8th. Therefore, the upside for the local unit might be constrained.

Charts

The rupee rallied over the past week and went above the key levels of 75. But it gave back some of the gains on Tuesday as it faces a critical resistance at 74.50. As such the rupee will have to break above 74.50 in order to strengthen further towards 74 going forward. Above this 73.75 is a considerable hurdle.

For now, the resistance at 74.50 has held very well and the rupee has reversed lower on Tuesday. The currency can slip back to 75. A fall below this could drag it to 75.25 and possibly to 75.50.

The dollar index (DXY) has been flat over the past week. It has been moving in the tight range of 95.70 and 96.25 of late. There is no clear direction for the DXY considering the prevailing price action. One will have to wait to get a clue on the next swing in price. Support below 95.70 is at 95.20 whereas resistance above 96.25 is at 96.70.

Outlook

While the rupee has been strengthening over the past week, it is hard for it to repeat a rally of last week as it faces a resistance. Also, the worsening situation at Russia-Ukraine border could weigh on the rupee. So, rupee bulls should be cautious.

Last week, we had recommended rupee short at 75.33 and 75 with stop-loss at 74.75. This would have resulted in loss for traders. Going ahead, we are still not very bullish on the domestic currency and the appreciation from here could be limited. Nevertheless, considering the uncertainties, we would ask traders to stay away now.

One can consider fresh short when INR rallies to 74.20 and add more shorts on a rally to 73.80. Place stop-loss at 73.60. When INR rise past 75, shift the stop-loss to 74.50. Exit the shorts at 75.50.

Published on February 22, 2022