Indian Rupee did not move as expected yesterday, with prices recovering quickly above 61.6 instead of pushing towards the support level of 61.35. With USD trading flat during the same period, the reason for yesterday’s recovery appears to be based on weakness in INR. However, there wasn’t any fundamental news release during the period that could have shifted sentiment, and the only reasonable explanation would be bullish INR traders realizing that they have overextended themselves by shorting USD/INR following the PMI numbers when stocks prices and risk appetite do not support such a bullish reaction.
This would mean that the subsequent rally can be interpreted as a one-time revaluation and does not necessary mean that overall sentiment of USD/INR. This could also explain why USD/INR dipped lower once again during today’s Asian session even though fundamentals news are sorely lacking again.
Technicals play an important part as well. It is likely that swing traders shorted USD/INR above the 62.0 ceiling, adding further bearish pressure on top of the original mild bearish bias that was seen on Monday. This assertion is strengthened when it is observed that prices found support from the original Descending Channel that was in play from the decline of last Friday. The resulting bullish response is huge, but we’re once again facing resistance once again in the form of last Friday’s swing high.
Considering that this move is purely technical, it is hard to imagine prices gaining much traction above 62.2. Nonetheless, Stochastic readings remain optimistic for now, with current readings level suggest that prices may even reach as high as 62.4~ using previous bullish cycle as reference. However, there is every chance that Stochastic readings will be able to reverse from here, as there are precedence with numerous inflexion points around current levels within the past 5 trading days, which opens up 61.6 as a bearish target.
Weekly Chart agrees with an eventual bearish pullback as well, as prices are currently testing Channel Top right now. Interestingly, Channel Top is currently around 62.4 as well, adding credence to the analysis above that short-term bullish momentum may run out of steam around there. This increases the strength of the Channel Top resistance, and opens up a move to 61.35 once again.
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