USD/INR Technicals – Bulls Not Dying Despite RBI Intervention

Hourly Chart

Indian Rupee rebounded from record lows yesterday following Central Bank RBI announced a special window to sell USD to the 3 largest Oil companies in India. As Oil is India’s biggest import item, this move will help to push Rupee higher by cutting down on the liquidity of Rupee on the secondary markets.

However, it is unlikely that Rupee will be able to be propped higher from here for long. RBI’s stash of USD reserves is not able to last forever, and it is unlikely that they would want to drain all their reserves for this operation especially when the Government is running a record budget deficit. Rightly or wrongly, RBI is required to finance the deficit as part of its mandate, and draining the reserves only makes fulfilling the mandate even harder. Financing issues aside, this new ruling does not really address the fundamental problem that India is facing right now – high inflation with low economic growth.

The reason Rupee is so deflated currently is due to foreign investors liquidating their Rupee assets and fleeing from the South Asian state. Without addressing the fundamental economic issues, we will see more and more foreign funds leaving India’s shores, pulling Rupee down further and further. It feels as though RBI is simply prescribing painkillers to a victim with continuous bleeding issue. Yes, the painkiller will work, but does nothing to stop the man from dying of blood loss. Without doing anything else, India’s economy will definitely collapse further and USD/INR will climb up even higher.

From a technical perspective, price dipped below the 161.8% Fib extension for a brief period yesterday, but we are now pushing above the aforementioned level once again, suggesting that bearish momentum has stopped. Stochastic readings agree as well, with readings pushing higher once again, signalling a bullish cycle after dipping into the Oversold region slightly during late US/early Asian session. As there isn’t much technical references for price action, traders may wish to use the Fibonnaci Fan for potential support/resistances references as we head towards the 261.8% Fib Extension which is above 76.0, a very long way to go. Traders who doubt the relevancy of the seldom used Fib Fan may choose to look out for breakout opportunity off the recent swing high of 69.5.

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