Rupee rebounded back yesterday, trading below the key 61.0 support an more importantly below the last Friday’s swing low – where this week’s USD/INR rally started. By trading below the 61.0, the rally has been invalidated, and short-term pressure is on the downside. When we consider that USD is actually trading mostly higher against other major currencies, it is interesting to see that Rupee manage to strengthen against the Greenback when the rest of the world actually bought USD following the postponement of a US Default by 6 weeks.
The reason for this strengthening appears to be talks between the Government and global banks to include Indian sovereign bonds into global bond indexes. If the Indian Government get what they want, foreign purchases of Indian bonds will increases significantly, potentially bringing additional $20 – 40 billion USD inflow into India annually, which will help square off the leak of foreign investments (FI) which has been the main culprit for Rupee slide in 2013. This news receive positive reaction mostly from offshore Rupee traders – a very good sign as this suggest that we could even see a temporary slowdown in outflow of foreign funds for now as these FI may just want to keep their money within India in order to purchase Rupee Bonds when they are able to do so.
From a technical perspective, we are not seeing anymore significant bearish push following the break of 60.9 resistance, with price trading sideways between 60.7 – 60.9 for most of the Asian session. Nonetheless, overall bias is bearish with prices testing 60.9 on a few occasions but ultimately failed. Stochastic favors a bearish push with Stoch curve facing “resistance” around the 55.0 level. Should Stoch curve indeed head lower with USD/INR breaking 60.70, we could see continuation of price heading towards the round figure 60.0.
Weekly Chart is extremely bearish currently, as the latest sell-off can be interpreted as the bearish rejection from Channel Top, which helps to affirm the breakout (or break in) of the Channel. However, it is unlikely that Channel Bottom will be reached on this bearish move alone as price has actually came off more than 10% and a significant pullback is overdue. Stochastic indicator lends weight to this assertion with readings close to the Oversold region, with Stoch curve likely hitting the Oversold region when price hits 59.0 – the lower end of the consolidation region back in July.
Fundamentally, nothing has change much in India’s economy outlook. Inflation continues to roar, with September Wholesale prices expected to climb close to August’s 6.10% increment due to more expensive food and oil imports. On the other hand, industrial output and the overall economic activity is expected to decline. IMF only recently slash India growth forecast to 3.8%, way lower from the previous 5.6% outlook, the steepest cut amongst all the downgrades. With a weakening economy and continued inflation, it is likely that FIs will continue to leave the country, and may even accelerate when US straighten their mess.
Seasonally, India tend to see huge Gold imports in the month of October due to their Deepavali celebrations, where gold is commonly given as gifts. Given that Gold prices has decreased significantly since September, demand for Gold may be even greater, and offset the expensive taxes and restrictions that RBI has made to limit Rupee outflow. Hence, traders should not simply assume that it’ll be a smooth bearish road for USD/INR ahead.
GBP/USD – Relying on Support at 1.5950 Level
AUD/USD – Remains Subdued with Solid Support at 0.94
EUR/USD – Finds Solid Support at 1.35
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