Rupee continues to strengthen, pushing USD/INR lower from around 66.75 thereabouts to a low of 66.08 within the first few hours of trading. This continues the downtrend that started last week following RBI’s new initiative to sell USD from its reserves to the 3 largest oil corporations in India. Despite doubting the efficacy previously, USD/INR did manage to break the 161.8% Fib Extension convincingly last Friday, sending price below the soft support of 67.0 as well. This break of 67.0 is further affirmed by the subsequent pullback during early US trading session. The pullback was rebuffed by the confluence of 67.0 confluence with the descending trendline representing the decline from last week’s peak, signalling that bearish pressure remain strong.
It is the same pressure that pushed price lower today, with added push coming from the decline of USD due to the lower likelihood of war in Syria. By virtue of trading below last Friday’s low, we are currently in a bearish extension leg which should bring us to the next support level of possibly around 65.7, which is not that far from here admittedly. Then again, Stochastic readings are hitting Oversold region already, and hence suggesting that it may be harder for price to push lower further especially given that fundamental reasons for a strong Rupee still remains extremely dubious; RBI’s recent policy introduction remains a short-term liquidity tightening measure and not the silver bullet the economy needs.
Hence, traders should not expect USD/INR to continue pushing lower for long, and the eventual bullish pullback/correction may be stronger than the decline that we’ve seen thus far. However, should RBI does manage to implement some sort of a stimulus plan, we could see Rupee trading back strongly once again. This may be reflected in technicals via price trading back within the Channel seen in the Daily Chart (below).
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