Prices have been highly volatile since last Friday as issues from US adds volatility into the Greenback, affecting USD/INR price action. The latest bout of USD strength today coming from rumors saying that US lawmakers may soon agree on a short-term increase in the debt ceiling, potentially kicking the can down to December. But even so, USD/INR continue to trade consistently within the rising channel, with current momentum towards the downside after this morning’s rally unable to test Channel Top in any way meaningful much less breaking it.
From a technical perspective, this opens up Channel Bottom as bearish target which is echoed by Stochastic indicator which is showing a bearish cycle signal right now. Given that we are close to the beginning of the bearish cycle indicated by Stochastic, there is a possibility that price may be able to breach Channel Bottom. But even then it is likely that prices will find further support from 61.3 – 61.5, and inspire a push back towards Channel Bottom once again.
Long-Term chart shows prices retesting the Channel Top after the breach last week. Considering that Stoch Curve could potentially rebound off the soft “support” level, the threat of prices pushing above Channel Top is real which will reinvigorate bullish momentum and open up a move back towards 2013 highs. However, if Stoch readings does rebound higher but price continue to straddle Channel Top higher next few weeks without breaking it, we could potentially see prices strong bearish momentum towards Channel Bottom in the future especially if Stoch readings stall under 60.0. Hence, next few weeks will be highly critical as we will be determine the direction for the rest of 2013 and potentially the 1st Quarter of 2014.
It is the same with fundamentals. We will get to know whether US will finally resolve their domestic issues or ultimately sent the country into default as early as next week, which will definitely have strong long-term implication in terms of direction. Hence, it is likely that major technical development from here will be in line with fundamentals, allowing for strong follow-through.
However, short-term fundamentals may actually favor a weaker Rupee. India Industrial Output will be released tomorrow, and expectations call for a 2.4% increase Y/Y, lower than July’s 2.6% increment. However, with recent downgrades of India 2013 growth by both IMF and World Bank, there is a good chance of a downside surprise. This may actually help to solidify Hourly Chart Channel Bottom, and pave the way for a USD/INR towards Channel Top on Friday once again.