Oct 17 2018

USDINR Ideas – Has it turned the corner – 17Oct2018

The last 4 working days has seen the rupee recovering from its all-time lows of 74.4850 to today’s intra-day high of 73.3625 – a sizeable 1.5% gain in quick time. Successive higher highs made by the USDINR in August, September and early October have been temporarily arrested. Has the rupee really confirmed a turnaround??

Let’s evaluate:

  1. External situation has moderated: US 10 year yields have cooled off from the peaks of 3.20-25 to 3.12-17. Crude prices have come down too. Asian currencies have recovered, etc. These factors have certainly had a calming effect on USDINR.
  2. USDINR NDF (speculative position takers) has started quoting lower – indications that long positions are probably getting reversed.
  3. The domestic situation looks a bit precarious – even though good fundamentals are still intact – uncertainties about critical state election outcomes continue to weigh on the Indian equities – after opening 1% higher today, BSE/NSE has closed lower by 1.25% – dramatic intra-day reversal.

Let’s analyze the technical charts for more clues:

On the daily chart, an upward moving trendline (green line) – connecting the USDINR lows of August and September broke yesterday. Momentum indicators are gradually cooling off from their overbought regions. There are visible negative divergences in MACD, RSI and Slow Stochastics (prices have formed a higher high while these indicators have formed a lower high). Usually, divergences are strong technical signals.

I feel rupee might stage a recovery – its relentless decline since April has not seen any sizeable counter reaction yet. First target 72.90-73.00, second target 72.00-72.10.

If Rupee weakens beyond 74.49 and plunges into a fresh all time low, the above assessment will be cancelled.

Exporters: start selling dollars if you haven’t started yet. Use a mix of forwards and options.

Importers: can target sub 73 levels to start buying. Keep strict stops as well.