Fundamentally, nothing much has changed for India over the weekend, and hence it is unlikely that today’s weakness in the rupee is due to India’s economics. A plausible explanation is that speculators who have previously believed in new RBI Governor Rajan have decided to close out some of their short USD/INR positions after getting tired of non-action after so long.
However, this assertion does not fly as there is nothing that could have sparked this change in stance. Furthermore, it is likely that these speculators would actually be watching the bearish technical signals and hence have a higher likelihood of holding onto their positions and perhaps even add onto them.
Hourly ChartUSD/INR Hourly Chart" title="USD/INR Hourly Chart" src="https://d1-invdn-com.akamaized.net/content/pice66231d87fc014f2bd3899074e8add5b.png" height="712" width="995">
Perhaps technicals may be able to give us some clues. 60.6 is acting as a formidable support level, with this morning’s price action tested the level briefly and was forced up higher after prices failed to break it. It seems that after the 60.6 held, prices went directly towards the resistance band of 60.9 – 61.0 which put a lid on current rally; a good sign that it is indeed technical influences that pushed prices higher this morning.
With Stochastic readings close to the Overbought region, the likelihood of the 60.9 – 61.0 holding increases, and we could easily see USD/INR heading lower once again as the short-term fundamentals remain similar to what we had the previous week – favoring a weak USD and stronger INR.
Weekly Chart USD/INR Weekly Chart" title="USD/INR Weekly Chart" src="https://d1-invdn-com.akamaized.net/content/pic0d804518ccb1f4ece85fde47ae39b037.png" height="712" width="995">
The Weekly Chart is bearish with prices not only breaking into the rising channel, but also entering into July’s consolidation zone between 59.0 and 61.0 (upwards to 61.3 if you are generous). Hence you have 2 support levels drawing prices lower, and we should reasonably expect at least a test of 59.0 eventually. The Stochastic indicator agrees, with readings pointing lower and suggesting that current bearish momentum should continue some more. However, readings are close to the Oversold region, and hence it may be slightly difficult for prices to push beyond 59.0 and hit Channel Bottom based on this bearish cycle alone.
This agrees with the long-term fundamental outlook where USD is expected to strengthen when the politicians finally resolve the Debt Limit and Governmental Budget issues. This will likely translate into the overdue bullish pullback of USD/INR. However, if India manages to get its act together, the rate differential between the INR and USD will definitely favor a stronger rupee, and a move back towards the Channel Bottom will be realistically possible.
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