Dec 03 2018

USDINR ideas – Rupee hitting a road block

Rupee’s gain continued relentlessly in November before hitting a road block on the first trading session of December. A slowdown in Indian Q2 (Jul-Sep) GDP growth to 7.1% and a huge surge in crude prices were the primary drivers to rupee weakness today.

Will rupee’s unidirectional recovery continue in December?

The move from 74.48 (11 Oct) to 69.56 (30 Nov) was as quick and unidirectional as the move from 69.40 (13 Aug) to 74.48 (11 Oct). Something that I can conclude with certain degree of confidence is “Unidirectional moves rarely persist for an extended period of time”. Moreover, it’s unlikely that crude prices will have substantial downside from here – don’t think Brent could fall below $58-60. Watch out for OPEC-Russia meeting on 6 Dec (where they are largely expected to cut supplies to rein in collapsing prices).

The daily USDINR technical chart indicates dollar oversold (rupee overbought) momentum indicators. The 144-day Simple Moving Average (green line) comes around the 70 figure. Candlestick chart indicates the formation of a Morning Star# pattern – such a formation on a downtrend gives a bullish signal – indicating a dollar recovery (rupee weakness).

My sense is a rupee weakening move towards 71.50 – 72.50. Some of the price gaps (pink horizontal lines) will be filled up.

Exporters: can hold for a while for dollar selling – first target 71.50; second target 72.50. Consider vanilla options.

Importers: should buy dollars for the short term (4-6 weeks). Levels around 70.00-70.50 are palatable considering the chaos of 73-74. Consider forwards and vanilla options too.

# Morning Star: a 3-day candlestick pattern consisting of:

  1. a black candle (continuing the downtrend),
  2. followed by a gap down on the open small candlestick, and
  3. a long white candlestick gapped up on the open (today’s candlestick) and closing above the mid-point of the first day’s candle.