BL Research Bureau
Despite an intraday rally on Wednesday, the rupee (INR) weakened towards the end of the session and closed on a flat note at 73.57 against the dollar (USD). Today, INR has opened with a considerable gap-down at 73.81 and the local currency is likely to trade with a negative bias today. Further depreciation can drag the rupee to 74. A breach of the this level can intensify the sell-off. Subsequent support is at 74.2. But if INR strengthens it can find resistance at 73.7. Above that level is the resistance of 73.5.
The Foreign Portfolio Investors (FPI) seem to be in a negative sentiment as they remained sellers on Wednesday as well. The net outflow stood at ₹3,912 crore (equity and debt combined), taking the weekly tally to ₹6,524 crore. The outflows are weighing on the local currency and if this trend continues, INR can be expected to breach subsequent support levels.
Dollar index
The dollar index decisively breached the crucial resistance of 94 as it closed at 94.39 yesterday. It has closed in the green for three consecutive sessions indicating good bullish momentum. As the index has broken out of the 94 and rallied past both 21- and 50-day moving averages, the trend has turned positive and it is likely to advance further towards 95.15 and 95.7. A rally in dollar can weigh on the Indian rupee.
Trade strategy
The rupee has begun the session with a gap-down and is currently trading below the support of 73.7. The price action looks weak, hinting at further decline. Also, the dollar index has turned bullish showing a good demand for the greenback. Considering this, the domestic currency is likely to depreciate today and so, traders can initiate fresh short positions in rupee in declines with stop-loss at 73.6.
Supports: 74 and 74.2
Resistances: 73.7 and 73.5