Technical Analysis

Weekly Rupee view: INR might stay flat

Akhil Nallamuthu | | Updated on: Jan 04, 2022
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On Tuesday, it lost about 0.4% and ended at 74.56 versus the US dollar

The Indian rupee (INR) ended 2021 with a loss of 1.71 per cent against the US dollar (USD) by closing at 74.33 last Friday. Notably, the Indian unit recovered considerable amount of loss as it rallied in the second half of December.

On Tuesday, INR lost about 0.4 per cent and ended at 74.56 versus the USD. Thus, the local currency started the week on a weak note. This is because the greenback has been strengthening and the US treasury rates are hardening this week. Participants wait for the OPEC meet and the US Non-Farm Payroll data later this week. These factors can impact the exchange rate of USDINR.

FPI Positive

As the equity markets recover, the foreign inflows seem to be improving. The latest NSDL data (National Securities Depository Limited) shows that the FPI (Foreign Portfolio Investors) have pumped in a net investment of $306 million this week.

Equities remain the favoured destination as the net inflows stand at $397 million. The debt segment, including the voluntary retention route, has seen net outflows of $90 million. Going forward, as the equities are moving up, the net fund flows can remain positive, which can help the rupee.

Charts

On the back of the rally that began in mid-December, the rupee marked a fresh six-week high of 74.09 on the final session of 2021. But it has weakened since then and on Tuesday, by closing at 74.56, it has slipped below an important level of 74.50.

While there is a likelihood of a decline to 74.80, the bullishness will remain until the local currency trades above the key level of 75. A slip below this price point can attract more sellers, potentially dragging INR to 75.50. On the other hand, a bounce off the support at 74.80 can take it upwards to 74.25. A breach of this level can lift the currency up to 74.

The dollar index, which gained 6.7 per cent last year, continues to move across the horizontal path between 95.75 and 96.90. So, until either of these levels is 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 the resistance at 97.60 and 98.00. But a break below 95.75 can be bearish wherein the index could fall to the nearest support at 95 and possibly to 94.50.

Outlook

Though the rupee is weak this week, the broader picture will remain bullish as long as it stays above 75. Nevertheless, for the week ahead, the rupee will most probably remain within 74.25 and 74.80 without establishing a trend in either direction. Until a clear trend emerges, traders are advised to stay out of the USDINR pair.

Published on January 04, 2022

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