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USD/INR Analysis: Something's Got to Give

USD/INR Analysis: Something's Got to Give

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USD/INR is pinned between the psychological resistance at 80.00 and rising trend support. A breakout is inevitable at some stage, but in which direction?

Since trading above 80 for the first time in July, the Indian rupee has struggled for direction. By early August, the rupee had gained ground, pushing USD/INR down to 78.40. However, three consecutive weekly gains soon saw the rupee back above 80.00.

In the last trading week of August, the dollar strengthened to within a hair of the previous record, topping out at 80.13 before retreating. The pair then briefly dipped below the 50-Day Moving Average (DMA) at 79.47, piercing rising trend support in the process. Similar to previous trips below the 50-DMA and the trend in the last six months, the rate quickly recovered quickly. As a result, USD/INR now has a decision to make — either break out to a new all-time high or fall out of its uptrend.

Considering the dollar surged index surged to a twenty-year high last week, you may wonder why the rupee ended the week lower. The answer lies in the price of oil. West Texas Intermediate (WTI) crude oil fell 6.03% in the prior five trading sessions, easing inflation expectations. India is the world’s third-largest oil importer, with around 90% priced in US dollars. Therefore, weaker oil typically results in stronger rupee and vice versa.

US Dollar to Indian Rupee Outlook

Turning to the daily price chart we see the clear technical support and resistance levels. Below the market, the confluent support of the 50-DMA and the rising trend should limit the downside.

However, a close below the trend at 79.45 could encourage USD/INR longs to take profits. In this event, the rupee should strengthen. A logical target then becomes the 100-DMA at 78.41 (blue line).

Bn contrast, a close above the former all-time high at 80.21, could see the rupee fall into the 81.00 to 81.50 range. Notably, the Reserve Bank of India (RBA) is actively intervening, in order to stop the rupee from falling too much. With that in mind, USD/INR should encounter resistance on the way up.

For now, it’s hard to predict which scenario plays out. What is clear, is that either the support or the resistance will soon be broken. For that reason, the immediate outlook is neutral, but subject to change when one of the above comes to fruition.

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USD/INR Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.