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USD/INR: Dip likely before further upside movement

USD/INR: Dip likely before further upside movement

2014-02-01 00:00:00
Research, Research Team

Main Points

  • USD/INR may take more retracement before resuming an upward trend
  • 62.00 is a very crucial support zone
  • RBI chief says India’s central bank is vigilant about any short term volatility in Rupee
  • USD headed for the best January since 2010

USD/INR closed around 62.543 yesterday with a shooting star candle on daily chart, which shows a downside risk as bulls appear to be losing ground amid recent comments from the Reserve Bank of India (RBI) head, thus off-setting Fed tapering jitters up to some extent.

The pair is being traded near 62.44 at 9:00 GMT in Asia. Resistance is seen around 62.58, confluence of 38.2% fib level and hourly moving averages, ahead of 62.74 that is 50% fib level. A break above this resistance zone may threaten 62.88, high of current wave on four-hour timeframe.

forex_usdinr_indian_rupee_upside_movement_body_Picture_1.png, USD/INR: Dip likely before further upside movement

On downside, immediate support can be noted around 62.39, 23.6% fib level, ahead of 62.25 i.e. 55 MA at four-hour timeframe and then 62.19, hourly 200 MA. A break below shall target 62.00 which is a very crucial support zone for a number of reasons;

  • It is a confluence of moving average i.e. 100 DMA and 55 DMA as well as 100 MA and 200 MA at H4
  • It is the first notable support below swing low of previous wave
  • It’s psychological level

Commodity Channel Index (CCI) and Relative Strength Index (RSI) both are just below overbought territory, which means a dip might be in play before further upside movement. Slight negative divergence can also be noted with MACD at four-hour timeframe.

Earlier, the head of India’s Central Bank, Mr. Raghuram Rajan,announced the Rupee is overall stable.However we may see volatility in the coming days due to various short term events. The RBI is vigilant about any such volatility and will play its role to avoid any sharp move in the Indian Rupee, according to an interview with Rajan.

India’s central bank has recently announced a surprise hike in the interest rate that consequently caused a slump in USD/INR by more than 8%.However, the Indian Rupee is still being traded around 14% down against the US Dollar as compared to the previous year. Meanwhile, India's Consumer PriceIndex (CPI),consideredthemain gauge of inflation,jumpedby 9.87% last month. Asia’s third largest economy is also due to hold general elections in May.

It is pertinent to mention here that the US Dollar is headed for the best January in more than three years against a basket of major currencies. The confluence ofgrowing optimism, an increase in consumer spending and the Federal Reserve’s back to back tapering in monthly asset purchase program were part of the dollar’s rise.

United States consumer spending surged in the fourth quarter at the fastest pace since 2010, a recent commerce department report revealed. The world’s largest economy grew 4.1% in the previous three months. US household purchases also rose by 3.3% according to commerce department figures.

Earlier this week, the Federal Open Market Committee (FOMC) ended its two-day policy meeting on a hawkish view about the US economy and thus decided yet another cut in monthly bond purchases by $10 billion. The Fed’s asset purchase program is now worth $65 billion per month.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.