Weekly view in rupees: Possible short-term recovery in rupees

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The rupee (INR) hit a record low of 77.53 against the dollar on Monday. Although it recovered a little on Tuesday to close at 77.33, the local currency continues to remain below the psychological mark of 77, indicating a considerable decline. Additionally, over the past week, especially after the Fed hiked rates by 50 basis points, the Indian currency was the weakest in Asia losing 1.1%. Since the beginning of the year, the INR has lost just over 4%. Weak fundamentals indicate that it remains more to the downside.

The strong dollar and crude prices that continue to remain at higher levels are weighing on national unity. While the Dollar Index (DXY) is trading above 103.5, Brent prices are hovering around $105 a barrel. Additionally, foreign portfolio investors continue to dump Indian assets. So far in May, REITs have sold $1.5 billion net, bringing total net outflows for the year to nearly $20 billion. That said, the charts also show a bearish bias for the Rupee. But the RBI is expected to come to the rescue of the INR as it holds a good amount of foreign exchange reserves.

Graphics

Over the past week, the local currency extended the slide and it marked a new all-time low of 77.53 on Monday. The trend is clearly bearish. From Tuesday’s close at 77.33, the closest support may be 77.60 and 78. On the other hand, if INR recovers from here, it may face resistances at 77 and 76.75. Notably though, the rally in the dollar index (DXY) appears to have slowed slightly.

Going forward, DXY is likely to experience some short-term moderation before resuming its uptrend. On the downside, 102.50 may be the support, below which support can be spotted at 102 and 101.20. If there is a correction, the rupiah can probably go up to 76.75 or even 75.50. But as it stands, DXY is moving in a tight range and its next stage of movement can heavily influence the movement of the Rupee.

Outlook

Basically, the Rupee is retreating as the Dollar and Crude Oil prices are at high levels. Technically, although the trend is bearish for the Indian currency, the price action of the Dollar Index over the past few sessions suggests a decline in bullish acceleration.

However, this does not mean a trend reversal. So overall, at the current juncture, the likelihood of the rupee moving in either direction appears to be equal. Therefore, traders can refrain from trading until we get more clarity.

Published on

May 10, 2022

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