USD strengthened significantly last Friday after the stronger than expected Non-Farm Payroll numbers, with Canadian Dollar the only major exception, with its own spectacular increase in employment numbers which beat US hands down. USD gained approximately 0.957% against a basket of 7 major currencies on a day/day basis, sending peripheral Asian currencies even lower as AXJ tended to react more compared to majors due to lower liquidity. INR was one such currency, with price breaking the previous swing high back in June 2012 and closing the week close to the weekly high.
The break proved to be shot bulls needed, with price continuing to jump higher during Monday’s open. Rupee bonds are offered heavily as traders clear their positions in expectation of weaker INR in coming months, which exacerbated the weakness, sending price higher and hitting above all time high of 57.70. Central Bank RBI has not been sighted thus far to address the sudden weakness despite saying last week that they will intervene to manage volatility, giving USD/INR bulls free reign to push prices higher.
Things will certainly look worse from here if RBI does not control the slide in INR. S&P has already warned RBI back in May that it has a 1/3 chance of being downgraded to junk, which will increase its borrowing costs significantly as RBI manages yet another year of fiscal deficit for the Government. However, traditional methods of raising rates to strengthen currency may not work here with the economy growth hitting the slowest in a decade. Buying up INR is also out of the window as RBI does not have enough funds to launch a sustained attack on the market. This puts INR firmly on the back foot for the foreseeable future, unless RBI manage to use unconventional methods to resolve all issues magically.
As we are currently trading at uncharted territory, it will be difficult to find relevant support/resistance points for reference. As such, traders should start watching out for any candlestick reversal pattern, or evidence of slow down from price action for guidance. Stoch readings may not be reliable from here out as strong trends tend to invalidate counter-trend signals from oscillators indicators.