#39;Narrowed trade deficit, all-time high forex reserves can boost rupee#39;
After a long phase of consolidation, the USDINR, as expected, continued the up move in the previous week too. Though the bulls opted for profit booking at higher levels and on weekly basis the currency pair closed off the week high but still gained 86 paise.
The dollar has appreciated more than 3.3 percent the last three weeks but the currency pair is likely to settle down at current levels and minor dip is also not ruled out.
The huge rally of the last three weeks is now showing signs of abating, as prices formed “island reversal” candlestick pattern on the daily chart basis. Long positions should be avoided as there is a gap on daily as well as weekly chart and currency pair is trading far away its 20-day moving average (DMA).
USD/INR SPOT DAILY
Generally, any extraordinary change in price is settled down near its 20 DMA and in this case, it is placed at 70.10. The seven-bar negative divergence on RSI is confirming the negative candlestick pattern and suggesting that bulls are tired.
Also, the weekly chart is suggesting that the currency pair could retreat towards the support level of 70.1. Though the long-term view is still bullish and any fall will only be the retracement after the breakout as the US currency is trading above all major moving averages and the much-talked about falling trend line is also broken on an upside.
In the recent carnage, the Indian rupee came out as most depreciated currency in Asia in August, so far. The fundamental triggers, however, suggest that this fall could be arrested in coming days on the back of positive news flows i.e. the trade deficit narrowed to $ 13.43 billion in July, mainly due to sharp fall in gold and crude oil imports while exports have risen by 2.25%. As a result, the trade deficit is at a four-month low.
Secondly, the selling pressure from foreign institutional investors has been reduced and even on August 14 they were net buyers after a long selling session that might be due to short covering.
Lastly, forex reserves hit a new high of $ 430.57 billion in the week ended August 9. The forex reserve will help the Reserve Bank of India to intervene in the situation by selling dollar and provide strength to the rupee.
Overall scenario suggests that recent up move in USDINR could go through a phase of mild correction till 70.1.
(The author is senior research analyst at Rudra Shares & Stock Brokers.)
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