Uncertainty Looms Over USDINR

  • Forex Analysis

Ever since coronavirus started spreading rapidly, the market focus was either on the number of cases increasing or on the stimulus packages from the governments and the central banks. But from the month of July, the trend in USD/INR spot has been very indecisive on lack of fresh triggers. The currency market has remained range-bound, seesawing in between 74.50-75.50. In a normal year, this range-bound movement would have been considered to a usual phenomenon, but this is not a normal year. The lower side of the range, 74.50 has been tested thrice but failed to break. And with each passing day, the range has been getting narrower. In the short term, the spot should give either side breakout for clarity over the trend.

But looking ahead, forex traders must navigate many unknowns, from the second wave of coronavirus, insights into how the US economy is recovering from the coronavirus pandemic, optimism over COVID-19 vaccine trials, ongoing US-China trade talks to US Presidential elections.

The infusion of both fiscal and monetary stimulus from major countries and trials over coronavirus vaccine have been surging the risk appetite, activating the USD/INR bears. If the crucial support of 74.50 breaks on heavy corporate inflows, then we may see a fall towards 74.20. But it is very premature to say that the USD/INR bearishness will continue as the global economic outlook is grim and shows no signs of recovery any time soon. Also, the RBI has been intervening in the USDINR spot and sucking out all the volatility.

The forex market is grappled with a lot of uncertainty. The recent much-awaited US-China trade talks got postponed with no new agreed date. The postponement of the deal doesn’t show signs that the deal is in jeopardy but Trump has been blaming China to hit the US with coronavirus plague. The 2020 US election will likely be controversial—in more ways than one. Trump is using China as a trump-card to triumph against Democratic Biden. So there is enormous uncertainty and it will get harder as we near the Nov 3, election phase, and can activate dollar bulls.

Technically as seen in the weekly chart, USDINR Spot has been trading in a tight range of 74.50-75.50 since mid-June and is currently hovering at 74.84. It is in the process of forming a flag pattern whose breakout point is located at 75.70. Once it comes out of its consolidation range and breaches 75.70 then 76.0/76.35 and it's previous high 76.90 is expected. However, 76.90/77.0 is a strong resistance zone, but if the pair sustains above 77.0 mark the 77.50 which is the target for flag pattern is expected. Bollinger band gap has also narrowed thus giving an indication of an upcoming big move in the coming days.

On the downside, 74.50 is consistently guarded by the RBI intervention shield below which 74.25 is also key bottom-to-bottom trend line as well as Bollinger band’s lower support level. However, if USDINR spot falls and constantly trades below 74.20 then 73.65-73.0/72.90 (crucial 61.8% Fibonacci Retracement as well as 50-days moving average support zone) is expected.
Analysis

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  • Bipin Kochar @Bipin Kochar
    RBI is foolishly buying USD and investing these in treasuries paying 1% interest. The cost of this intervention on our economy is very high as it is pushing up inflation, squeezing domestic money supply and raising interest costs for the debt laden Indian economy.To curb the excessive inflows the best approach is to let Re find the right level (around 73) - or impose a tax of around 1% for conversion of USD to Rupees
    Like 2
  • Gourab Barma @Gourab Barma
    rbi will not let the value of rupees to increase easily, as it will hurt the export industry.
    Like 1
  • Arijit Na @Arijit Na
    Isn't price already breached support and tested below 74 levels today itself?
    Like 2
  • Deepak Gupta @Deepak Gupta
    VERY INFORMATIVE 👍 THANKS
    Like 1
  • Prakash Vishy @Prakash Vishy
    timing of the article could not have been better on the day it breached the support
    Like 2

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