USD/INR: Rising Inflation Not Stopping Rupee’s Gain

Rupee was one of the many beneficiaries from the USD weakness this morning. However, compared to other currencies such as AUD, EUR and GBP, USD/INR movement pales in comparison. Nonetheless, the strong bearish momentum since the start of September continues to be in play, allowing bears to form consistent lower lows and lower highs. This strong bearish momentum is affirmed once again with the higher than expected Wholesale Prices which grew 6.1% Y/Y – higher than the 5.8% previous month and the 5.7% expectation. This is bearish for Indian economy, pushing Rupee lower and USD/INR higher. But the fallout wasn’t spectacular, with USD/INR barely moving 30 cents higher.

Hourly Chart
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From a technical perspective, price has been stalling around the 62.4-62.5 level, suggesting the bearish momentum was taking a break – presenting the best chance for bulls to take over and ride on the higher than expected inflation. The failure of bulls to do that suggest that bears are still in charged.

That being said, there is still a chance that bulls may be able to slowly push higher slowly from here. Stochastic readings are pointing higher, and if we push above the 62.7 soft resistance it is likely that Stoch levels will break 20.0 for a bullish cycle signal. This could potentially send price reaching the 63.0 round figure support turned resistance. In theory, if this bullish cycle takes full flight, we could even reach the 64.0 round figure, but there is also a chance where Stoch readings will turn around at the 35.0 – 40.0 levels, where a trough was seen last Friday. Another scenario may see price unable to break 62.7, which opens up 63.40 – 63.5 support as the immediate bearish target, which a high likelihood that bears may be above to break it for an extension move.

Weekly Chart
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Weekly Chart is less optimistic for the bears, with prices heading directly into the confluence between Rising Channel Top and the levels of the original Channel Breakout. That being said, Stochastic readings continue to be bearish, and we could see price breaking the confluence level and accelerate towards the consolidation zone of 58.75 – 62.0 Whether price is able to break the consolidation zone and head towards Channel Bottom will largely depend on whether RBI has managed to resolve the current account deficit and the runaway inflation then. If these 2 major issues have been resolved, the high carry of shorting USD/INR should naturally push Rupee higher in the long run.

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