USD/INR – Mildly Higher But No Clear Trend Emerging

USD/INR has broken the 62.5 resistance yesterday, with price trading mostly above the 62.5 level, yet it is difficult to shake the overall bearish bias that is still shadowing on price action. Perhaps the reason is due to the failure of bulls to distance themselves away from 62.5 after the break. We’re not running across the finishing line, but merely stumbling across like a drunkard, suggesting that the push across the 62.5 mark could be just fluke from volatility and not a legit bullish push.

Strangely, Indian stocks climbed higher today without any major announcements and against the grain of the rest of Asian stocks that are trading lower following the loss of risk appetite in the US. But that could be simply due to a technical rebound from the Sensex’s biggest 2 day drop in a month and not really due to optimism/confidence in the Indian market. However it seems that there is very little impact on USD/INR, with prices continuing to remain sideways within a marginally rising Channel.

The reason for the lack of direction can be attributed to the fact that market is undecided on the long-term impact of RBI rate hike on the Rupee. By standard market behavior, a rate hike should result in a stronger currency as it will attract more deposits and reduce loans, resulting in less liquidity and hence having an appreciative effect. However, in the case of Rupee, a rate hike is likely to result in the already bad economy worsening as local firms that badly need loans will need to incur much higher costs, hence driving the Foreign Investment (FI) out even faster and hence resulting in a depreciated currency. There is no telling which is the stronger driver right now, even though the USD/INR rally back on Friday suggest that market may be focusing more on the latter rather than the former. But then again market sentiments changes, and right now we do not have a clear winner between the 2 factors.

Hourly Chart

There isn’t clarity from short-term technicals either. Looking at Stochastic, Stoch readings have been heading lower since 20th Sep but prices have been pushing higher instead, giving us a divergence which suggest that current price mild rally may unravel. However, price actions traders would tell you that price actions trump all indicators and with prices trading consistently within the Channel, it is hard to argue that price will be able to push lower as long as Channel Bottom remains unbroken.

Even if price manage to break below right now, it is possible that 62.25 may provide slight support especially given that Stochastic readings are currently extremely close to the Oversold region. Hence, current technical setup does not provide strong conviction in either direction, similar to the fundamentals, and conservative traders may wish to wait for clearer indications before committing.

Weekly Chart

Weekly Chart favors bulls with Channel Top holding and the long term trend pointing higher. The problem is that a buy signal isn’t forthcoming and once again traders may need to wait for stronger signs of a bullish reversal. Stochastic readings suggest that the wait may not be long with readings close to the levels where previous trough has been seen. The problem is the “not long” is relative here, and may be multiple weeks (multiple candles) before confirmations can be seen.

More Links:
EUR/USD – Eases back below Support at 1.35
AUD/USD – Attempting to Stay Above Key Level at 0.94
GBP/USD – Moves up from Support at Key 1.60 Level

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