USD / INR Technicals – No clear direction despite RBI’s reluctance to ease

4 Hourly Chart

On a day where USD is beating strength against most major currencies (except EUR), INR is gaining the upperhand with price trading below the  23.6% Fib retracement (5th Oct ’12 Low vs 26th Nov ’12 High). Stochastic reading is also sharply lower from the recent peak, though readings did not manage to hit beyond 80.0 to form any meaningful sell signal. Should price fall, 54.10 becomes a viable support/ short target for bears.

Weekly Chart

From the Weekly Chart, price still hovers above the 23.6% Fib retracement, which also act as a nice support/resistance historically. A break below the level opens up the 38.2% Fib, coincidentally close to the bottom of Oct ’12. Stochastic reading here is also a little bit more bearish with reading barely hiting above 80.0 before coming down to current levels.

In this week, the Indian equities benchmark index SENSEX crossed 20,000 before retreating 200 points on Wednesday, adding volatility to USD/INR. Also, we have RBI Governor Subbarao stating that “both monetary and fiscal side have no room for stimulus” while speaking to students yesterday. This fly in the face of analysts and bankers who have been predicting a 25bps cut during the next meeting on 29th Jan, some of whom even met with RBI this week to request for a 50 bps cut. Should Subbarao stick to his words and keep a tight leash on monetary policy, something that he has done back in mid-2012, we could see similar strengthening of INR between Jul – Oct ’12. Of equal concern however, is the fact that India’s economy does need some stimulus, failure to provide such stimulus, whether via rate cuts or changing the reserve ratios may result in the economy spiraling downwards, which will weaken the INR.

If one is to be critical about it, current weekly chart doesn’t really inspire any strong bullish/bearish bias, as price is sitting in no-man’s land. Arguments could be make that we’re still in the midst of an uptrend (with higher lows and higher highs), but it is not apparent. Similarly, bears may simply conclude that we are almost forming the right shoulder of the Head and Shoulder’s pattern. Who is right? Nobody can tell. But certainly Subbarao’s decision will be critical to make the charts bull/bear bias clearer.

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