Technical Analysis

Uptick in INR may not sustain

Akhil Nallamuthu | | | Updated on: Dec 21, 2021

Short INR at the current level with stop-loss at 75.25. When the rupee falls to 75.85, revise stop-loss to 75.50 and liquidate shorts at 76

The Indian rupee, which marked a fresh one-year low of 76.31 against the dollar last week, has been appreciating over the past four sessions. On Tuesday, the domestic currency gained 0.41 per cent and closed at 75.60, bringing down the year-to-date loss to 3.47 per cent.

Interestingly, it has been gaining post the US Federal Reserves’ announcement of concluding the tapering by March 2022. The likelihood of three rate hikes through next year too did not have a negative impact on the rupee, largely because the Fed announcements were in line with market expectations. However, can this positive trend continue over the ensuing weeks is a question as the Indian currency might face significant struggles in appreciating further.

Also see: Nifty call: Initiate fresh shorts at current level with stop-loss at 16,700

The price of Brent crude oil, which had fallen significantly in the past couple of months, seems to be forming a good base at $70 a barrel. It is currently trading around $72.80. While this positivity in crude can be temporary, rise in price beyond $77 can impact the rupee negatively, given its negative correlation because of huge imports.

In addition to this, FPI (foreign portfolio investors) selling, which slowed in the second week of December, seems to be accelerating. The latest data by NSDL (National Securities Depository Limited) shows that the total net outflow by FPIs currently stands at ₹24,652 crore. In comparison, net outflow stood at ₹12,414 crore a week ago. This trend is likely to continue, which can add further downward pressure on the local currency.

Charts

After hitting a fresh one-year low of 76.31 last Wednesday, the rupee has been on a recovery path. It crossed over the key level of 76 on Monday and yesterday wrapped up the session at 75.60. However, 75.50 is a strong resistance and a rally beyond this level is less likely. Moreover, the trend continues to be bearish for the rupee.

Also see: Domestic shares bounce back after steep fall in the last session as IT, metals rise

Resistances above 75.50 are at 75.25 and 75, whereas supports are at 75.85 and 76. The dollar index continues to trade in the range of 95.75 and 96.90. Until either of these levels are breached, the next leg of the trend will remain uncertain. A breakout of 96.90 can turn the trend positive and can take the index to 97.60 and 98.00. But a break below 95.75 can be bearish, in which case the index could fall to 95 and possibly to 94.50.

Outlook

Going forward, the rally in the rupee may not continue and will most likely resume the downtrend from here. But there may not be much movement since the dollar index is staying flat. In the coming week, INR can be expected to drop to 75.85 and possibly to 76.

Traders can short INR at the current level with stop-loss at 75.25. When the rupee falls to 75.85, revise the stop-loss to 75.50 and can liquidate the shorts at 76.

Published on December 21, 2021
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