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The rupee, which was the best performing Asian currency in March, has given up about half of the gains in the last couple of weeks. On Tuesday, it weakened by nearly one-third of a per cent because of sell-offs towards the end of the session, triggered by the Russia’s foreign minister announcement that the country is starting a new phase of operations in Ukraine. The year-to-date loss of the Indian currency against the dollar now stands at 2.9 per cent.
Several factors have been impacting the Indian currency such as FPI (foreign portfolio investors) outflows, higher crude oil prices, and a strengthening dollar on the back of rising US Treasury yields. Considering these factors weighing on the local unit, it held quite well for some time before beginning to depreciate. However, the fundamental factors mentioned above can continue to trouble the rupee and more downsides can be expected, at least in the near-term. Technically too, the price movement is hinting at more decline.
Charts
After facing resistance at 75.40 in the first week of April, the rupee started to fall. It slipped below the key level of 76 and on Tuesday, it closed at an important level of 76.50. The price action is indicating further weakness with the nearest support at 76.70, but a minor one. Subsequent support is at 77. As it stands, the INR touching 77 in the next week or so looks very likely. On the other hand, if it recovers from here, it will faces hurdles at 76 and 75.60. But a rally beyond 75.60 is less likely as these levels can attract fresh selling.
The dollar index (DXY) broke out of the range of 97.70–99.40 in early April. Thus, price action on the daily chart resembles a bull flag and thus, the bullish continuation can be expected. Currently trading at 100.80, the index can rally to 102.50. The flag pattern suggest an upswing to 103. Therefore, the price area of 102.50–103 can be a resistance band from where the DXY could see a correction. Yet, the scope of rally to 103 make things hard for rupee bulls.
Outlook
Both fundamental and technical factors are indicating more depreciation in the Indian currency. While there might be a corrective rally, it can be capped at 75.60 and eventually, could fall to 77.
From a short-term trading perspective, one can short INR at current level of 76.50 and short again if it rises to 76. Go with a stop-loss at 75.60. Liquidate the short when it falls to 77.
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