Feb 15 2017

What is Rupee up to?

Had articulated my mind about USDINR direction on my research (USDINR Ideas – Nothing endures but change) dated 3 Feb17 (am sure you would have received a copy). I had sensed that rupee gains will stop around 67.10-30 – obviously markets didnt have to agree with me and rupee touched a high of 66.76 (strongest levels since mid Nov16).
Whats in store ahead?
The Dollar Index, after a brief decline towards 99.00-99.50, has started rising again and is touching the 101.50 mark. In this dollar rally, Rupee has either gained or remained stable. On the last occasion when dollar index was near the 101.40-50 mark (mid Jan17), rupee was around 68 – this time rupee is comfortably below 67. There is certainly some disconnect. In usual circumstances, rupee cannot gain when dollar is rising against other currencies. Sudden rise in the Indian bond yields (obviously spooked by the RBIs change in stance from accommodative to neutral) could decipher some amount of this puzzle.  
On the daily candlestick chart, rupee has partially filled the 66.65-95 price gap formed in mid Nov16. New down gaps have been formed at 67.93-67.89 (30Jan-31Jan17), 67.7875-67.6850 (31Jan-1Feb17) and 67.18-67.07 (8Feb-9Feb17) – notice the horizontal pink lines. The momentum indicators are comfortably in the oversold region. MACD and its Signal line is about to give a buy USDINR indication. After sharp gains in 7-8 trading days, rupee has stabilized around 6675-95 for 5 successive trading days – suggesting that this region is a crucial support.
My sense is (this is sounding too clichéd now) that the days of sharp rupee gains are over. 66.75-95 will act as a good support. We could see a rupee weakening move towards 67.15-25 (first target) and 67.75-95 (second target) to fill the price gaps.
Importers: please continue to hedge your near term liabilities. Do increase your hedge ratios for medium term payments as well. Forwards and options (volatility is low and hence this is cheap) should be considered.
Exporters: wait for dollar upticks. If one needs to hedge now, consider only options. For forward selling, use the targets suggested above.