November 2018 has seen a dramatic reversal in rupee’s fortunes. From a low of 74.14 on 31 October 2018 to the current levels around 71.45 – rupee has posted substantial gains of more than 3.5% in 12 trading sessions. Do we still have rupee bears screaming for 75-77 in 2018?
What has driven rupee to surge in such quick time is common knowledge – collapsing crude prices, lower US bond yields, RBI-Govt reconciliation, unwinding of speculative NDF positions, so and so forth. What lies ahead is a billion dollar question.
Technical charts have often provided vital clues for forecasting (please check my mail/research dated 17 October 2018 to validate this).
A glance at the daily chart shows that the momentum indicators (14-day RSI, MACD and Slow Stochastics) are gradually turning/ turned overbought. An upward moving trendline (Yellow line), connecting the USDINR lows of April 2018 and August 2018 comes around 71.30. The 89-day Simple Moving Average (Blue line) is at 71.29 – please note that the 89-day Simple Moving Average has often been an important indicator of support levels in the past (especially during times of market stability after a turmoil). There are visible price gaps (Pink horizontal lines) at 72.41-51 and also at 73.21-45.
My sense is that rupee’s gains are done for the moment (at least in this rally). There should be a counter reaction of rupee weakness – towards 72.40-60 (first target) and then 73.25-45 (second target). If rupee gains beyond the 71 mark, the above judgement will be invalidated.
Exporters: hope you have sold (as I had suggested on 17 October 2018). Use vanilla options if you are mandated to sell now (stop loss selling).
Importers: your time has come. Certainly buy for the short term (15-days to 1 month). Levels around 71.30-40 are mouth watering having seen 73-74. Do consider vanilla options too.