USD/INR Technicals – Bearish Breakout Seen But Hold Your Horses

After trading between 61.5 – 63.0 for the past 2 weeks, USD/INR has finally broken below 61.5, with bears inspired by broad USD weakness. The initial dip below 61.50 triggered stops and large sell orders, accelerating prices below the key 61.3 lows, bringing us the lowest level since the FOMC event 2 weeks ago.

2 Hourly Chart

It is interesting to see that Rupee has strengthened so much since RBI Governor Rajan has taken over. Perhaps his surprise rate hike on 20th Sept is indeed working now, helping to support INR even though initial reaction towards the rate hike was one that of bewilderment and disappointment – resulting in a weakening of Rupee which sent prices towards 63.0.

However, it is difficult to see current short-term bearish momentum continuing so sharply considering that nothing has fundamentally changed right now. Stochastic readings agree as well, with Stoch curve already Oversold and flattening out. If we do see a bullish pullback which fails to break the 61.3 – 61.5 support turned resistance, we may at least have a strong breakout confirmation for stronger bearish extension moving forward. As it is right now it is difficult to determine how far current bearish momentum will last before the eventual pullback occurs, hence chasing this breakout in this stage is risky.

Weekly Chart

This riskiness is highlighted on the weekly chart, where prices is heading directly into the 59.0 – 61.3 small consolidation in the month of July. It is possible that price may find support at any level within the consolidation zone especially since there isn’t any strong fundamental reasons why INR should continue strengthening given the continued problems in India’s economy. Furthermore, the USD weakness that was the trigger for the breakout may evaporate soon with US politicians appearing to have reached a compromise. Stochastic readings kind of agrees with the fundamentals, with readings most likely within the Oversold region when the low end of the July consolidation zone is reached. Therefore, do not automatically assume that this bearish breakout will automatically open up Channel Bottom as immediate bearish target.

More Links:
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