There are some interesting moves happening in the Indian Rupee, so let’s take a look and update our risk management levels and targets.
Here’s the US Dollar/Indian Rupee pair on a longer-term basis. What’s clear from the weekly chart is that our thesis remains intact. As long as prices are above 69, then the path of least resistance is still higher.
Click on chart to enlarge view.
Tactically, there has been strong resistance near 72.25 over the last 7 months. Last week prices broke above that level intraday but then failed again. With momentum in a bullish range and prices continuing to work through this overhead supply through time, the higher-probability outcome remains the continuation of its long-term uptrend. The evidence suggests its less about “if” and more about “when.”
Here’s the Euro/Rupee pair holding above support at 77.80 once again. This continues to act as support, but there’s a clear lack of momentum in either direction which has kept us on the sidelines.
The same can be said for the British Pound/Indian Rupee. Prices remain stuck below resistance near 94 and above support near 89. Until that range breaks decisively one way or another, there’s little reason to be betting aggressively in either direction.
Lastly, we have the Yen/Rupee trying to stage another breakout above 0.67, closing near the highs last week. If we see follow-through this week then it would confirm a breakout and suggest a push towards 0.72 is coming in the next couple months and quarters.
To conclude: From a longer-term perspective, the last week or two of action has not changed our approach towards the Rupee.
What we do find interesting is that the US Dollar and Yen, which act as a “safe-haven” during times of market stress are the two pairs pressing up against new highs relative to the Rupee. That calls into question the strength of the underlying breakouts they attempted last week.
Will they ultimately fail once global markets stabilize again and money flows out of safe-haven currencies like the US Dollar and Yen?
That’s impossible to quantify, but it is something worth considering if you are buying this breakout. If the Euro and Pound were also participating then we could say that a broad-based decline in the Rupee is likely ahead…but that’s not what we’re seeing just yet.
Overall, there remains little reason to be long the Rupee against any of these pairs. With that said, these breakouts in USD/INR and JPY/INR have a lot to prove in the days and weeks ahead. We’re going to take a more cautious approach and not buy the initial breakouts, but rather wait and see if they accelerate higher and then buy weakness back towards their breakout level. If this is truly the start of broad-based weakness in the Rupee, we’ll have plenty of time to participate.
With that said, if you do want to be aggressive and accept a lower probability trade with a higher reward/risk, then our risk-management levels in the two pairs remain 70.25 and 0.67, respectively.
Thanks for reading and let us know if you have any questions!