Feb 03 2017

USDINR Ideas – Nothing endures but change

Just when everyone thought that INR 68 to a dollar is the new norm – boom, the market delivers a punch and says “Im the boss, not you”. It took just 4 working days to change that norm and suddenly, we have levels around 67.30-40 (something, that was a bit difficult to imagine a few weeks back – specially after Trump came in with his strong dollar rhetoric). Lets introspect and recognize what the market is trying to teach us:
First, there is nothing called a norm.  
Second, levels evolve (change) – “Nothing endures but change” – Heraclitus of Ephesus (a Greek philosopher).
A question naturally arises – what really happened to warrant such a rupee gain so quickly?
Trumps jawboning was the primary factor – along with his administration officials, Trump has accused certain nations (China, Japan, Germany) of currency manipulation to gain trade advantages, and complaining that dollar is too strong. Quite a clear signal for the markets to sell dollars. Dollar index collapsed from 101 to 99.5 in 2 days – all currencies surged (along with the rupee).
What lies ahead?
There are two down-gaps in the daily chart (green horizontal lines), first at 67.93-67.89 (30-31Jan) and the next at 67.7875-67.6850 (31Jan-1Feb). Recognizing rupees gap filling ability, a move towards those ranges can be anticipated. An up-ward moving trendline (yellow line) connecting dollar lows of Feb15 and Nov16 comes near 67.05-67.20. The 144-day Simple Moving Average (a reliable support/resistance indicator) is at 67.33. Momentum indicators are nearing the oversold territory. There is an unfilled gap around 67.25-67.31 (pink horizontal line).
My sense is that dollar will find support around the 67.10-30 region for a move to 67.90-68.00 (at the least).
Importers: please hedge your near term liabilities. Can also increase hedge ratio for medium term payments. Do more of forwards and consider some options.
Exporters: am sure you would have hedged 30%-40% using forwards and would have done some seagulls too (following my mail dated 16 Jan17).