Rupee weak below 73.25

BL Research Bureau

The rupee (INR) settled higher by 18 paise last week as it ended at 73.06 versus preceding week’s close of 73.24 against the dollar (USD). However, the local currency seems to have opened with a considerable gap-down today, erasing last week’s gain. That is, INR has opened at 73.23 and it is currently testing the key level of 73.25.

A break below this level can drag the local currency towards the support band of 73.40 and 73.50. A breach of these levels can intensify the sell-off and take the exchange rate to 73.65. But if the domestic unit bounces off the support at 73.25, it can appreciate to 73.15. Subsequent resistance is at 73.00.

The foreign portfolio investors (FPI) continues their positive trend in 2021 as well. The FPI net investments for the month so far stands at ₹14,839 crore as per National Securities Depository Limited (NSDL) data. Out of this, equity has attracted the major portion of the inflows as net investments in this segment stand at ₹18,490 whereas the other segments like debt and hybrid have seen net outflows.

As a positive factor, total foreign reserves is at record levels as per the latest Reserve Bank of India (RBI) data. That is, total FX reserves stands at $586 billion as per as on January 8, 2021. Since reserves is at the lifetime high levels, it can be comforting factor for the domestic currency as it can be an effective tool for the central bank if there is excessive volatility in the exchange rate of USDINR.

Dollar index

The dollar index lost three-fourth of a per cent last week as it closed at 90.77 versus preceding week’s close of 90.10. The price action of the dollar index is gradually becoming bullish and so it can be expected to rally at least in the short-term. Currently, it is trading 90.85 and is staring at a resistance of 91. A breakout of this level can improve the upward momentum where the index could rally to 91.20 and 91.50.

Trade strategy

The rupee has opened the week on a bearish note at 73.23 today. The price action over the past week shows bearish signs in the rupee and also, the index is hinting at dollar strengthening. But since 73.25 is a support, traders can short INR with a tight stop-loss if it falls below this support.

Supports: 73.25 and 73.40

Resistances: 73.15 and 73.00