USD/INR: Bears Remain In Charge Despite Freaky Friday

India's rupee weakened slightly after RBI’s surprise rate hike on Friday. However, USD/INR bulls were not able to seize the opportunity to send prices higher despite the rally helping to keep prices above the key ascending trendline (see Weekly Chart below). The bullish correction stopped at around 62.5, before trying to attempt a break once more towards the final 1 hour of trading.

This morning was the same, where prices gaped higher but 62.5 continue to stand firm. Currently we’re trading between the 62.5 ceiling and the 62.3 soft swing low of last Friday’s final few hours of trade. This suggest that bulls continue to remain robust, but bears are more than capable of meeting the challenge.

Hourly Chart
USD/INR Hourly" title="USD/INR Hourly" src="https://d1-invdn-com.akamaized.net/content/picc2f78c3b9dd4afac9036c73600cd0c0c.PNG" height="306.26896551724" width="undefined">
From a technical perspective, initiative should be given to the bears in the short-term as overall bias remains downwards. The longer price fail to break 62.5, the higher the probability of price trading lower towards 61.3. Stochastic readings show price currently pointing higher, but we are currently in the middle of a bearish cycle, and it is not unreasonable to believe that Stoch readings will be able to turn around at the 50.0 level.

Weekly Chart
USD/INR Weekly" title="USD/INR Weekly" src="https://d1-invdn-com.akamaized.net/content/piccde5be1c98f8f2e62283178eed62dd2e.PNG" height="307.04827586207" width="undefined">
The long term trend begs to differ though, with prices not only unable to breach the rising trendline, but more importantly trading around the closing levels of the week of 11th August – where the initial breakout of the Channel took place. Hence, we have good evidence that current bullish breakout is still in play. For Stochastic indicator, readings are currently around the previous trough found on 1st week of May – where price rebounded from Channel bottom and the beginning of current bullish leg. As such, it is possible that the same could happen again, where Stochastic readings rebound higher similar to price, just that instead of Channel Bottom prices is rebounding off the Channel Top.

The fundamentals of the rupee is a little bit confusing though. A rate hike last Friday should have an appreciative impact on rupee, but it seems that the opposite is true. This is no unreasonable as traders of rupee prefer to focus on the fact that tightening measures will severely impair economic growth potential and do little to keep inflation in check. Hence, the net impact of rate hike is actually bearish for the rupee. It remains to be seen what new Central Bank Governor Rajan has in mind, as the market has given him a huge forward premium even before he made his first announcement as Governor. It is also possible that market has decided to short rupee after Friday due to the fact that they are no longer impressed with what Rajan can potentially bring. If that is the case, we could see price reverting back to the long-term bullish trend as market will claw back all the gains it has given rupee with interest.

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