Technical Analysis

Rupee might depreciate gradually

Akhil Nallamuthu BL Research Bureau | Updated on November 23, 2021

Strengthening dollar could give a bearish bias to the rupee   -  istock.com/7Crafts

May trade in 74.25-74.60 range with high chances of breaking below 74.60

The rupee closed almost flat on Tuesday as it ended the session at 74.42 versus the preceding day’s close of 74.40 against the dollar (USD).

Nevertheless, it is slightly positive for this month with a gain of 0.6 per cent despite the dollar seeing a sharp rally. Strong FPI (foreign portfolio investor) inflows and a drop in crude oil price over the past few weeks have helped the rupee stay afloat against the greenback.

The FPIs, who were net sellers in October with net outflow of ₹12,437 crore, have pumped in ₹20,916 crore so far in November. Out of this, equities saw the biggest inflows with a net inflow of ₹14,286 crore despite remaining weak over the past few weeks. On the other hand, spot brent crude, currently at around $79.2 a barrel, has fallen nearly 6.3 per cent so far this month. The negative correlation between the rupee and the crude price helped the domestic currency to some extent. A string of IPOs that hit the market in November also aided the increase in rupee demand.

On the charts

The rupee, which has been gaining since mid-October after hitting a fresh one-year low of 75.67, faced hurdles between 73.85 and 74 in early November. While it depreciated from that level, INR has largely been flat during the past couple of weeks, trading within 74.25 and 74.60. As it stands, the price action do not indicate a clear trend and the rupee is likely to stay within the afore-mentioned price band. However, a strengthening dollar could give a bearish bias to the rupee, indicating a higher probability of the support at 74.60 being breached.

The dollar index broke out of the resistance at 94.65 a couple of weeks ago and has been rallying since then. Now trading at around 96.50, it has gained 2.5 per cent in the current month and the chart hints at further appreciation. Although the immediate resistance is found at 96.80, given the current upward momentum, the dollar index can be expected to touch 97.50 within a month. This could weigh on the Indian currency.

Outlook for the week

While the foreign inflows can help the rupee stay firm against the dollar, the momentum with which the greenback has been gaining against major currencies globally could eventually start pulling the rupee lower.

In the coming week, rupee might trade within the range of 74.25 and 74.60 with high chances of it breaking below 74.60 and weakening towards 75 in the next two to three weeks. Even if the rupee appreciates contrary to our expectations, the chances of it gaining above 74 in the short run look less probable.

Published on November 23, 2021

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