Rupee likely to appreciate in near-term; USDINR futures may trade lower, support at 81

Rupee likely to appreciate in near-term; USDINR futures may trade lower, support at 81.1

By Dilip Parmar

The Indian rupee is expected to appreciate following overnight weakness in the dollar index after US inflation cooled in December. The implied opening from the forward suggests USDINR could trade at 81.25. On Thursday, spot USDINR fell 2 paise to 81.55, registering the fourth decline in a row following stronger Asian peers and dollar inflows through the FDI route. Technically, the pair has been trading in a bearish sequence of lower top lower tops and bottoms. It has support at 80.70 once the level of 81.10 breaks, while on the higher side, 81.70 and 81.90 become the resistance.

Looking ahead, PMI gains in November and December point to improving sentiment that should help counter global headwinds. The dollar extended its decline after a report showed US inflation cooled in December, providing the Federal Reserve with room to slow the pace of interest-rate hikes. Asian shares were mostly higher in choppy trading on Friday, with a light tailwind from easing inflationary pressure in the US. Bank of England policy maker Catherine Mann said underlying inflationary forces in the UK look “pretty robust,” a signal she’s still pushing for big interest-rate increases despite the prospect of recession.

USDJPY is accelerating on the downside as traders smell another BOJ policy change is coming. Bearish dollar momentum is taking on a self-fulfilling role, given fresh impetus with JGB 10-year yields above 0.5%. USDINR January future depreciated for the fourth day in a row. The pair closed well below medium-term moving averages. The pair broke the one-year upward slopping trendline support of 81.70 pave the way for further weakness. Momentum oscillator, Relative Strength Index placed below 50 and heading towards an oversold zone. MACD fell below the zero line with a negative cross over.

The derivative data shows a short build-up as the price declined while open interest and volume gained. Looking at the above technical evidence, USDINR futures could trade lower. It has support at 81.10 and resistance at 81.70.

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)