INR has been moving in line with our estimates. The mention that “ …we should could be looking at the USDINR to move towards 71 and 71.60 in the next few weeks. We advocate to engage in trading as well as introducing a hedge against a weaker INR…” proved to be quite timely as we are nearing the first target zone. A surge in global oil prices spooked the rupee. With currency waivers issued to India expiring earlier this month there is a certain panic set into the system that has made the rupee weaker. Elevated crude prices could widen the country’s current-account deficit and stoke inflationary pressures. RBI meanwhile is attempting to inject liquidity into the system by engaging in long term foreign exchange buy/sell swap. While the effect could be a a little delayed the foreign exchange reserves are definitely getting dented.
On the charts too the price action has been clearly suggesting a gradual and measured rise ahead of the key event , the results of the general elections next week. The financial markets in India have already started reacting and volatility is definitely stepping up. With Fibonacci supports seen on the charts clearly supporting the weakening over the last few weeks . The breakout of the trendline which we had showcased last week triggered some sharp rise. On the lower panel we see that the ADX /DMI setup is also getting set for some trended action . With negative DMI line inching higher we need to see if the INR moves beyond 71 for fuelling further rise towards anticipated level towards the next value area resistance around 71.60. At the moment INR could take a breather at 71 till some triggers are visible.
As we step ahead into a volatile market scenario for the next few weeks we need to approach the market from a trading perspective too. The bounds for the next quarter would be in the range of 68.40 to 71.60 where we can expect the INR to trade in. With INR approaching the upper end of the range one can begin to tone down the hedge one these levels are reached and step into trading. In the meanwhile, the global cues shall give us some clarity on how to position our selves once dust settles on the election results.