Technical Analysis

Weekly Rupee View: INR likely to remain weak

Akhil Nallamuthu | | Updated on: Nov 30, 2021
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Consider selling once it falls below 75.20. Stop-loss can be at 74.90. Exit the shorts at the prior low of 75.67.

The downward pressure on the rupee towards the end of last week was carried over to this week. Consequently, the domestic currency broke below the key support of 75 against the US dollar on Monday. On Tuesday, INR remained below that level and closed at 75.1650. Thus, the year-to-date loss of INR against USD increased to nearly 2.9 per cent.

There is a notable decline in the dollar index over the past few sessions and crude oil crashed last Friday.

Despite this, the rupee depreciated and this is largely because of considerable selling by foreign portfolio investors (FPIs). The FPIs, who remained net buyers in November until a week ago, have turned net sellers. Net FPI outflows stand at ₹2,521 crore in the past week compared to net inflow of ₹20,916 crore a week earlier.

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The equity segment took the biggest hit as it has been under strong selling pressure of late. The net outflow in this segment stands at ₹5,945 crore. On the other hand, the debt segment has seen positive flows i.e., net inflow of ₹3,449 crore (including the voluntary retention route).

Charts

The sell-off that began in early November on the back of the resistance band of 73.85 – 74 continues to retain the momentum. This is reiterated by the recent breach of the support at 75. Therefore, currently at 75.1650, the local currency is likely to maintain the bearish bias. Nevertheless, INR has supports at 75.20 and 75.40. Notably, 75.67 is the 52-week low.

However, if the rupee recovers above the support-turned-resistance level of 75 because of the recent weakness in the dollar, it will face hurdles at 74.80 and 74.60. The probability of INR appreciating above 74.60 in the near term is very low.

The dollar index, which was rallying with a strong upward momentum, has reversed lower after marking a high of 96.94 last Wednesday. Since then, it has been declining and it is currently trading around 95.70. The price action hints at further depreciation with nearest support at 95.50. Subsequent support is at 95. Weakening dollar can add strength to the rupee.

Outlook

Although the weakness in the dollar is positive for the rupee, continued sell-off by the FPIs can result in more downside for the rupee.

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Technically too, it appears weak and the likelihood of INR touching 75.40 within a week is high. It can also descend further and retest 75.67 in the forthcoming weeks.

On the upside, recovery can be capped at 75.

From the prespective of trading, since 75.20 can offer some support, one can consider selling INR once it falls below 75.20. Stop-loss can be at 74.90. Exit the shorts at the prior low of 75.67.

Published on December 01, 2021

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