About a month ago we outlined that the US Dollar was at key support relative to a basket of Emerging Market Currencies, one of which is the Indian Rupee, and that its upward trend was likely to continue.
After some brief strength following this post, we’re seeing the US Dollar continue to weaken…which raises the question of whether it’s losing its leadership position against the world’s major currencies.
First, let’s start with the daily chart of USD/INR and look at the three points of failure where conditions were supportive of higher prices and yet the pair couldn’t break out.
Click on chart to enlarge view.
Failure #1 – In early March prices broke out of their initial base and immediately met our upside objective near 78. Their inability to get above resistance on their first test was the first point of failure.
Failure #2 – Several weeks after consolidating in a “triangle” continuation pattern, prices attempted to break out again and quickly failed, breaking to the downside instead.
Failure #3 – A week after our post on the US Dollar, USD/INR attempted to break out again but was rejected at its May highs and has moved sharply lower since.
That brings us to today, where prices are testing their initial breakout level near 74.50 as RSI reaches its lowest level in almost a year. This pair has had many reasons to break out and it has not, so it may be that that the market is telling us a change of long-term trend is underway.
What this means for us is that we do not want to be buying this pullback in the pair despite prices still being above our 74.50 risk management level. Instead, we want to sit on the sidelines and see how this develops in the coming days/weeks.
If this level breaks to the downside, we likely want to be shorting this pair very aggressively…as failed moves typically lead to fast moves in the opposite direction.
Here’s the weekly chart showing why a break below this support level 74.50 would be of major significance. A move below it would confirm a major failed breakout and bearish momentum divergence and suggest downside risk is elevated towards the pair’s next level of long-term support near 69.
The US Dollar falling out of favor is a major theme we’re looking at and researching extensively. For now, it looks like the Rupee collapse is on hold and we should be monitoring the above charts very closely.
This theme will be discussed along with many others in the Quarterly Playbook we’ll be releasing for members in the next couple of days.If you enjoyed this post and want access to all of our premium content, start a 30-day risk-free trial. Or sign up for our “Free Chart of the Week” to receive more free research like this.
Thanks for reading and let us know if you have any questions!