USD/INR – Rupee Weakens on Tax Hike

India’s Finance Minister Chidambaram pulled no stops when he said that India must embrace growth “unhesitatingly”. To meet growth targets, public spending will be 16% higher in 2013 while aiming to reduce deficit at the same time. To achieve this, he proposes to increase number of jobs and widening current tax base. Financing the current deficit, aimed to be 5.2% of GDP will be via foreign investment and commercial borrowings, estimated to the tune of USD$75 Billion. Mr Chidambaram said that “India at the present juncture does not have the choice of welcoming and spurning foreign investment”, however the propose tax hike might result in foreign investments fleeing India, instead of attracting it.

Rupee tanked after the budget announcement, while the stock benchmark index Sensex traded lower, clocking in 0.96% loss (at present of writing), suggesting that investors are wanting out before the higher tax kicks in. To put it in perspective, all other major Asian indices are trading higher with N225 +2.71%, HSI +1.96%, ASX +1.34% and STI +0.20%. It is apparent that the market does not like what Chidamaram has told them.

Hourly Chart


Hourly Chart shows price breaking not just the Kumo, but also the 50% Fib retracement and also the previous swing high on 26th Feb which is also the confluence with 61.8% retracement. Stochastic reading tells us that the pull back is too strong, but we might not have seen the end of the reversal with the distance between Stoch/Signal still looking wide.

Daily Chart


Longer-term chart is mildy bullish, with price peaking out of the current Kumo, though a bullish Kumo Twist is still not formed unlike the hourly chart. Price is still a distance away from the Shooting Star candle formed on 22nd Feb. To have a fully bullish bias, price should ideally push above the tail of the Star to open up targets above 55.0 round number. Stochastic is providing support of a bullish scenario with the Stoch line looking to cross Signal, forming a trough. However price is still firmly in a Lower Highs, Lower Lows sequence and it will take longer for the overall bias to shift. In the meantime, there are other fundamental concerns such as this Friday’s US sequesters which may strengthen or weaken USD depending on the resolution (or lack of one).

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