USD/INR: S/T Bearish Trend Intact, Long-Term Outlook Mixed

Hourly Chart
USD/INR Hourly" title="USD/INR Hourly" height="631" width="990">
Bearish trend in USD/INR continues despite the rally seen during European session yesterday. Prices remain capped below by Channel Top, with Stochastic indicator showing a bearish cycle signal. Channel Bottom becomes an obvious bearish objective, and there may strong bearish acceleration should price breach 62.2 in conjunction with stochastic pushing below 60.0.

Should prices push above 62.45, further bullish pressure cannot be ignored, with 62.8 becoming the immediate bullish objective. However, the overall bearish bias is still not invalidated, which increases the likelihood of a pullback towards Channel Top once again. Price should preferably push above 63.3 before bearish pressure can be eased.

It is also important to note that USD/INR has been decreasing in the past few days due to weakness in USD. Should USD strength come back into play, this short-term bearish bias will need to be re-evaluated. As it is right now there are early signs that USD strength may be coming back. Yesterday's dovish speeches by Bernanke, Yellen and Evans failed to impress market, with Stocks, Gold and Bond prices falling. This suggest that speculators that have been betting on a non-taper outcome in December FOMC may be fully saturated, and we could see long-term fundamental drivers playing a larger influence moving forward.

Weekly Chart
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This would mean that prices may be on-track to move back towards 70.0. Currently prices are trading below Channel Top, but we are still some distance away from a bearish confirmation. Hence the likelihood of a false break is high. Similarly, Stochastic readings are pointing lower and crossing the Signal line, but we are situated very close to the Oversold region with the previous bullish signal barely taking off. Without pushing below the recent trough above 20.0, the bullish cycle can technically remain in play, once again increasing the odds of a false break.

It is not all doom and gloom for Rupee though, International Finance Corp - the financing arm of the World Bank, issued Rupee denominated bonds for the first time as part of the USD $1B rupee-linked program. The first tranche of issuance is for 3Y Bonds priced at 7.75%, which is close to Indian Government Bonds of similar maturity (7.59% for 3Y and 8.07% for 4Y). The demand was much higher than expected, with investors wanting as much as INR 20 billion versus IFC's expected issuance size of between 3 - 10 billion INR. The high demand for INR linked products is a good sign that foreign investors have not given up on INR yet and implies that investors do not think that INR will not be depreciating too much in the next few years.

Hence, even if USD/INR is slated to rally from here out, do not expect the same sort of bullish momentum back in May, and expect much more resistance along the way.

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