In line with the views mentioned last issue where we had said , “…lower bounds seems to have shifted towards 70 while the upside remains capped at 72. “ , the USDINR continued to remain muted between this range. With a year end in progress and the overseas markets remaining subdued , the focus has now shifted to the domestic environment. Recently , RBI has once again engaged in carrying out simultaneous purchase and sale of government securities through special open market operations (OMOs) for Rs 10,000 crore each on January 6 following a review of liquidity situation. The reason is that markets across the globe are considering the cautious optimism surrounding the US-China trade and the US-Middle tension to sell the dollar.
Higher timeframe charts suggest that the trends are not giving up the bullish intentions and are taking supports around 70 levels and inching higher. The weekly charts are demonstrating a coiling formation highlighting a breakout possibility. With the momentum retaining its bullishness and biding some time to take its course. Hence , we cannot discard the possibility of and INR move above 72. The current market scenario though positive on the Equity segment with constant FII inflows the INR does not seem to be cooling off. With overall macroeconomic situation continuing to languish it has cast a spell on the INR strengthening. The display of some positive upward traction has once again prompted us to look for some INR weakening in the coming days. A symmetric triangle formation is indicating that a breakout above 72 can take it towards 75 in the next few months. However , this move is more contingent on domestic situation worsening.
The market is now clearly discounting that the Government may breach fiscal deficit significantly. It aims to borrow from the market much above its own estimates to support growth (fiscal stimulus). Indian banks are not yet aligned to reduce the interest rates in line with the RBI cuts that have been introduced. We are observing RBI is emulating the Fed in all its policy actions (successive rate cuts, OMO, Operation Twist). Unlike the Fed, it does not have a proper mandate making it difficult to arrest the weakening . Hence the INR attempt to move higher could be more subdued forcing us to adopt a more measured approach towards trading and hedging till a trend emerges.