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Is this the beginning of a very large move?

Share Written By
Rahul Gupta

Head of Currency Research

04 Sep 2020

The initial USDINR spot pandemic rally phase has been unwound. The risk sentiments appear to be the most positive on the weakening dollar index, along with the infusion of liquidity by either the central bank or the government. RBI's recent announcement over special open market operations (OMO) and measures to foster orderly market conditions, pushed the spot to six month low of 72.75. The sharp slump in the spot was not even capped by the RBI as the appreciation in rupee works towards containing imported inflationary pressures.

In such a dire situation, there are a lot of speculations that the dollar will crash and lose its prominence as the global reserve currency. But the recent better US manufacturing data provided support to the dollar index, limiting the fall in USDINR spot. The US ADP private jobs report for August will be today's focus, with an increase of 1 million expected and compared with 167,000 in July. While, the closely-watched US non-farm payrolls report is also due on Friday, which may prompt some buying in USDINR spot on expectations of better data.

 Technically, USDINR spot is above Bollinger band's lower level. RSI indicator stands at 17.40 mark which indicates oversold position hence we can expect bottom fishing at these lower levels if there is no major news update for a visa-versa move. Also, the following chart shows that the dollar Index has stabilised after dropping to 91.746, its weakest level in more than two years. The index took the support of bottom-to bottom trend line and is currently hovering around 92.414. It has also witnessed a Classic Bullish Divergence in its daily chart with prices giving lower lows and RSI indicator giving higher lows. 92.80 is crucial resistance which is also 61.8% of Fibonacci Retracement levels and strength above this will lead a bounce towards 93.45-93.85/93.95. While 91.75 will continue to act as a key support, below which next support lies at 91.30/91.25. But there still exists uncertainty over the passage of the US fiscal stimulus package. The US Treasury Secretary Mnuchin has expressed the urgency in need of additional fiscal stimulus to fully rebound from the Covid-19 crisis, and he has initiated a conversation with House Speaker Nancy Pelosi amid stalled negotiations on a relief package. Any development on the fiscal stimulus package will limit the gains in the dollar index and USD/INR spot may follow it. In USDINR spot, the pair's recent low of 72.75 will act as an immediate support level and only consistent trading below this will lead to 72.50/72.40 which is 161.8% Fibonacci Projections crucial support zone. On the upside, 73.30-73.70 are crucial resistance levels and strength above this will open doors for 74.0-74.25.