USD/INR – Staying In Between Bullish and Bearish Crossroad

As India pays tribute to Mahatma Gandhi’s 144th birth anniversary today, Rupee continues to weaken slightly, pushing above the 62.5 soft resistance level. It would be interesting to hear from Gandhi what he thinks about India’s current state – where 32.7% of the population is estimated to be below the poverty line. Middle Income aren’t doing well either, with their savings dwindling down due to high inflation rates which far outweighs deposit rates. Certainly the great man affectionately called “Father of the Nation” by many Indians has brought independence to the nation, but are these people better off 65 years since his death?

It may be hard to answer considering that we do not have hard data from pre independence era, but considering that most if not all major industries in India are owned by Indians currently and not owned by foreigners, wealth generated is being kept for Indians and not leaking out. This may be simplistic, but as a whole India certainly is much better off compared to the old days. Nonetheless, if RBI and current Government do not do something about their economy right now, any advancement made since will be unwind and more people will end up just like the old days .

Weekly Chart

In this regard, is RBI and the Government doing enough?

The new Governor Rajan has yet to make a significant move that can assure investors that India is moving in the right direction. However, market has afforded RBI advance credits, sending USD/INR from a high of 69.5 to a low of 61.3, believing that Rajan will make good of his promise to turn things around. This is further helped by the shakiness in US with the whole QE Taper and the Debt Ceiling issue now. Hence, the outflow of funds from India appears to have lessened somewhat, but if RBI doesn’t give market the big bazooka (borrowed term from ECB last year), we could see market taking back their early credit and demand further interest, potentially driving USD/INR to 70.0 and potentially beyond.

This sentiment is best reflected by recent price action, where bearish pressure remains but the long-term bullish trend continue to exert influence. Prices have failed to trade below the Channel Top properly, but instead continue to straddle the rising trendline slightly higher. This make sense as fundamentals still point to a weaker Rupee moving forward, but market is still keeping the faith with RBI but not exactly fully convinced that the problem has been solved.

Hourly Chart

Short-run pressure is on the upside, with Stoch readings continuing to point higher after a recent dip. Furthermore, as previous peak did not start off from the Overbought region, it will not be wrong to interpret current bullish push above 62.5 is actually part of the previous bullish cycle which started from the lows of 1st of October with 62.9 as the ultimate bullish target. Moving forward, given the conflicting drivers between economic fundamentals and RBI supporters, we could see 62.9 holding, sending price down once more.

As the distance between short-term rising trendline and 62.9 will continue to narrow in the coming days, it is possible that the bearish rejection of 62.9 may result in prices breaking below the rising trendline – with bearish acceleration which may result in a break below the Long-term Channel Top. As USD/INR bears have managed to trade below Channel Top for the past 2 weeks, do not automatically assume that such short-term bearish momentum will lead to a push towards Channel Bottom especially if fundamentals have not changed.

More Links:
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EUR/USD – Flirts with Resistance at 1.3550 then Eases Back Under

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