USD/INR: Resisting USD Strength Valiantly

The Indian Rupee has strengthened slightly against USD in the past few hours despite hitting a high of 61.55 during the first 2 hours of trading. USD/INR was bullish initially, continuing the trend seen last Friday - a common theme across most risked correlated assets. Prices took a significant U-Turn when Chinese economic data was released, with the stronger than expected headline GDP print allowing risk appetite to rebound slightly. Sensex was the biggest beneficiary from this, currently gaining 0.43% but managing to hit a high of 21,209 despite trading in the red as low as 21,001 at one point. This bullish response is not seen in other major Asian stock indices, where Nikkei 225 closed 0.59% lower, Hang Seng Index at current -0.83%, STI at -0.53%. Even ASX, the Australian index which should have been the most sensitive towards Chinese economic data closed 0.21%, with Sensex the only one that managed to flip sides.

Hourly Chart
USD/INR Hourly" title="USD/INR Hourly" height="613" width="976">
The strength in Sensex helped drive Rupee stronger, and just like the equity counterpart, the Indian currency is the only major currency that managed to hit a level higher than that of Friday's close (at least for now). This shows the strength in Rupee and at the same time demonstrate the importance of having strong equity market for Rupee's health. Given that Sensex remains healthy for now, the possibility for Rupee to continue strengthen against USD today is high.

Technicals likely play a part as well. Prices have rebounded off the 61.55 resistance with this morning's rally unable to overcome the rising trendline - invalidating the uptrend that was in play on Friday and opening a possible move back towards 61.10. Stochastic readings agree, with a bearish cycle currently in play. However, Stochastic favours a rebound of 61.3 (support seen on Weekly Chart below) as readings are below 50.0 and will likely hit Oversold when price tags 61.30.

Should risk trends improves, likelihood of a 61.3 break becomes higher, but considering that US is having a bank holiday today, it is unlikely that risk trends will be able to change significantly. As such, a hold of 61.3 becomes more likely in the immediate short-term unless European markets manage to surprise on the upside.

Weekly Chart
USD/INR Weekly" title="USD/INR Weekly" height="613" width="978">
Weekly Chart does not favor bears though. Stochastic readings are much closer to Oversold region compared to Hourly Chart, and even if prices managed to breach the 61.3 key support, it is unlikely that we will be able to hit 59.0 before a pullback occurs, and a push towards Channel Top may be more likely from a pure technical perspective. Fundamentals continue to favor long-term bullish trend as USD is expected to increase while INR remain at risk with high inflation and weak production figures. Without the strength from Sensex, it is unlikely that Rupee will be able to strengthen by itself, and traders who wish to long Rupee right now for the long haul might be burned should Sensex's strength start to mean revert back in line with the rest of the Asian equities; it is unlikely that Sensex will be able to remain stronger than the rest of Asia for long given the weak economic fundamentals of India.

Original post