USD/INR: Resilience and Bearish Momentum to Extend Breakdown

Ibeth Rivero

India, home to Asia third-largest economy, was slowing before the outbreak of the Covid-19 pandemic forced a nationwide lockdown. The first-quarter GDP expanded by 3.1%, the lowest growth rate in eight years. This morning’s manufacturing PMI for May shows a significantly smaller rebound in activity than forecast and remains deep in the depressive territory. Despite the negative data flow, the USD/INR remains resilient and maintains its bearish bias. Price action is well-positioned to extend the breakdown below its short-term resistance zone, enforced by its descending Fibonacci Retracement Fan sequence.

The Force Index, a next-generation technical indicator, remains below its horizontal resistance level and moves farther away from its ascending support level. Adding to downside pressures is the descending resistance level, as marked by the green rectangle. Bears are in complete control of the USD/INR with this technical indicator below the 0 center-line, favored to collapse deeper into negative territory.

Manufacturing weakness led the disappointing first-quarter GDP data and is set for a repeat in the second quarter. The ₹20 trillion spending package announced by Prime Minister Modi is unlikely to address the slowdown, as it lacks fresh capital and consists of expedited pre-approved infrastructure projects. Adding to concerns is the decrease in deposits at local banks, but the USD/INR weakness is driven dominantly by bearish progress out of the US. It allowed this currency pair to correct below its short-term resistance zone located between 75.316 and 75.648, as marked by the red rectangle.

Agriculture remains a rare bright spot for the Indian economy, but an early locust outbreak is diminishing hopes for millions of migrant workers who returned to their villages due to the lockdown. Providing a bullish catalyst for the Indian Rupee is the relative fiscal responsibility exercised by Prime Minister Modi’s government. In conjunction with US monetary and foreign policy, the conditions are ripe for a breakdown in the USD/INR below its support zone located between 73.962 and 74.286, as identified by the grey rectangle. An extension of the corrective phase into its next support zone located between 72.348 and 72.702 is expected, driven by ongoing US economic weakness and its growing debt pile.

USD/INR Technical Trading Set-Up - Breakdown Extension Scenario

  • Short Entry @ 75.050

  • Take Profit @ 72.350

  • Stop Loss @ 75.700

  • Downside Potential: 27,000 pips

  • Upside Risk: 6,500 pips

  • Risk/Reward Ratio: 4.15

A breakout in the Force Index above its ascending support level, providing current resistance, could result in a temporary counter-trend reversal in the USD/INR. The upside potential remains limited to its resistance zone located between 76.433 and 76.769, which is pending a downward revision. It will provide Forex traders with a secondary short-selling opportunity, supported by intensifying US Dollar weakness.

Advertisement
The rupee has been extremely popular lately - don't miss these interesting opportunities!
Trade Now

USD/INR Technical Trading Set-Up - Limited Breakout Scenario

  • Long Entry @ 76.050

  • Take Profit @ 76.500

  • Stop Loss @ 75.850

  • Upside Potential: 4,500 pips

  • Downside Risk: 2,000 pips

  • Risk/Reward Ratio: 2.25

USDINR

About the Author
Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

Currency Pairs:
Comments

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments
Add Comment

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.