USD/INR Trading Lower On USD Weakness

The rupee strengthened yesterday, which is not unexpected since a technical squeeze leading to the downside was already in the works based on price action analysis. However, prices were expected to only feel the squeeze between the 62.9 resistance and the rising trendline, not from 62.5 as the resistance appeared to be broken. But instead of pushing higher, prices actually dipped lower, pushing below the trendline, reaching 62.0 – 62.1 soft support by the end of the US trading session. Prices took an additional tumble during Asian hours today after the aforementioned support was broken.

There was an Indian bank holiday yesterday, so there were no domestic fundamental developments. Hence the decline in USD/INR yesterday can be wholly attributed to the weakness in the USD, which has actually weakened against all major currencies except CAD on a D/D basis. This is true for price movement today as well, and therefore puts some doubt as to whether bears have what it takes to break 61.5 since there are very minimal fundamentals supporting a stronger INR.

Hourly Chart
USD/INR Hourly Chart" title="USD/INR Hourly Chart" src="https://d1-invdn-com.akamaized.net/content/picec212cfa7d31eee400369c882f9fc944.PNG" height="322.63448275862" width="undefined">
From a technical perspective, bearish momentum is continuing for now with Stochastic readings pointing lower despite forming a bullish cycle signal just a few hours prior when 62.0 soft support was still holding. However, it is still possible for a short-term bullish pullback as there is a long tail Hammer candlestick rebounding from the 61.5 level. Should Stoch readings rebound from the 20.0 low as well, we could see prices move up to test 62.0.

Weekly Chart
USD/INR Weekly Chart" title="USD/INR Weekly Chart" src="https://d1-invdn-com.akamaized.net/content/pic2581e6dc5824a72252b3861f601863c2.PNG" height="323.41379310345" width="undefined">
The Weekly Chart shows prices dipping below the Rising Channel Top. However, we’ve been through this before, hence we do not automatically assume that price will simply move down quickly from here. Nonetheless there are some encouraging technical signs – Stochastic readings have broke below the 50.0 “support”, and suggest that the next leg of bearish momentum will continue. Based on the distance away from the Oversold region, we could potentially see prices pushing into the 59.0 – 61.3 consolidation range, where bullish pullback can be expected before the channel “break in” can continue towards Channel Bottom.

Not much change in the fundamentals since we’ve last discussed USD/INR. But for now it seems that the USD will continue to weaken in the short-term due to debt ceiling fears and also lessened QE tapering jitters. Hence this would be the best opportunity for the USD/INR to break into the Channel. If RBI Governor Rajan is smart, he would make use of the opportunity to send the rupee higher as momentum is in his favor.

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