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Rupee can find strong support near 53.70 levels ahead of RBI policy

USD/INR depreciated by 2.8% (from 53.61 to 55.13) in just 2 days; whereas it was seen taking more than 15 days to appreciate by 2.1% (from 55.13 to 53.97).

Mar 17, 2013, 10.02 PM IST
Rupee can find strong support near 53.70 levels ahead of RBI policy
Rupee can find strong support near 53.70 levels ahead of RBI policy
By India Forex Advisors Research Team

After depreciating 2.8 per cent post the announcement of the Union budget 2013-14, the Indian rupee bounced back more than 2 per cent in the last two weeks. The appreciation was seen on the back of sound performance both in domestic and global equities, which supported inflows into the country.

The FIIs have pumped in $1.87 billion since the start of the month. The disappointment after the budget is seen fading out as the risk appetite took the limelight.

The improvement in local fundamentals also supported the gains. But again as said earlier, the pace of rupee depreciation is still higher than the pace of appreciation.

USD/INR depreciated by 2.8% (from 53.61 to 55.13) in just 2 days; whereas it was seen taking more than 15 days to appreciate by 2.1% (from 55.13 to 53.97).

Talking about the local factors, the strong expectation of a rate cut in the upcoming monetary policy on Tuesday has also helped the local unit. Overall, we still maintain a bearish outlook on the rupee. The rupee can find a strong support around 53.70 levels as multiple indicators are pointing towards the same. However, we expect the prices to rebound from these levels up to 54.50-55.00 levels at least.

The improved trade figures with revival in industrial index also boosted the positive sentiments. The recent inflation figure which came in higher at 6.84 per cent failed to hurt the market expectation of rate cut as non-food manufacturing inflation, i.e. core inflation which the central bank uses to gauge demand-driven price pressures, slowed to 3.8 per cent in February from 4.1 per cent a month ago.

With local news, the rally in the global riskier assets also helped the Indian rupee. The Dow Jones industrial average was seen extending its recent winning streak to ten straight days on Thursday, a string of gains last seen in late 1996, and ended at another record high as investors were encouraged by data showing the labour market improving.

The US equities have accelerated their rise without a major consolidation since the start of the year, driven by improvement in the economy and the Federal Reserve's continuation of its easy monetary policy.

Fund flows really have reversed direction, and money started moving out of money markets and some from fixed income to equities.

Unfortunately, this spectacular rise is backed mainly by the Federal Reserve’s open market activities; not by any real measure of increased market production.

With the Fed’s unrelenting race to inject credit into the market over the past few years, shouldn’t we pump the brakes for a second and look at what is happening before another bubble is created?

With an almost record high Fed balance sheet of $3.09 trillion, even the most interventionist policy makers can’t say that we haven’t done enough.

Ultimately, the Fed is leading the economy down a path of financial instability. If the Fed keeps up its bond-buying program at the current pace, it will just continue sowing market uncertainty by overloading investor portfolios with risky assets while making it harder to plan for long term investments.

The dollar shuffled to a lower close for the first time in last six weeks as weaker US consumer confidence data dented the sentiments in the market. A short covering rally in the euro on hopes of a more accommodative fiscal stance in the Euro zone supported the Indian rupee.

Talking technically, the dollar index has rallied from 78.91 to 83.16 levels in the last one month, which has been quite parabolic. The dollar index has corrected up to 82.01 levels which is a strong trend line support (Daily Chart). We can see further consolidation between 81.80 and 82.30 levels before it takes flight to the next levels.

In case of USD/INR, the rally seen from last four weeks is taking a pause. Technically, we can see that after rallying for the past four weeks, USDINR pair is now moving down indicating slight appreciation in the rupee.

We have taken a retracement from the recent low of 52.89 to the recent high of 55.13 levels (weekly chart). Currently prices are finding immediate support at 54.00 levels (50% retracement level). We expect this level to provide strong support next week also. The 14 ay RSI is giving an indication of a downtrend in the pair.

In case the prices break below 54.00 levels, next support will be at 53.75 (61.8% retracement level). We can see the same levels on daily chart where the prices have formed a big triangular pattern.

On the following chart we can mark some important support levels (red circles). Even the Bollinger’s bands are providing a strong support at 53.75 levels. In addition to all this we have also taken a retracement from a record of 57.33 levels to 51.25 levels, providing the support of 53.79 (38.20% retracement).

(The views and recommendations expressed in this section are the analysts’ own and do not represent those of

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