When trades go wrong speculators will often search for explanations. The recent surge higher of the USD/INR definitely needs to be questioned as to why a reversal took place after the forex pair seemingly recaptured its ‘lost’ value following the US election, and then suddenly fled its ‘renewed’ lower price band and jumped higher the last two days of trading, likely destroying many speculative positions.
One frequent observation from old school traders is the notion that a hunt is underway to knock out oppositional positions. This hunt is conducted in the minds of these traders against them by financial institutions and other so-called smart money. In essence, the explanation insists on the idea that when the market is going in a direction no one expected, this ‘smart money’ is wiping out positions which will stand in its way later and they do not want speculators to participate in the larger moves – thus reaping the benefits for themselves. Is this conspiratorial thinking? Yes, it definitely is. Is it wrong? Maybe not completely.
However, the explanation of positions being knocked out of the market does have validity if smart money is trying to set a trap against other institutional money which it feels – maybe conclusively – is holding an oppositional position. This means the smart money is not really going against the small retail trader. What actually might be happening is that trading is being conducted in a competitive manner by large institutions – governments, corporations and banks against each other sometimes – in order to have a clearer path to an ultimate goal.
If this is what is taking place in the USD/INR, it would be a good explanation regarding the movement of the USD/INR, even though it is hard to prove. However, let there be no doubt: the recent surge of the forex pair likely caught many folks by surprise and knocked them out of their trades because traders believed the USD/INR had returned to a norm. Forex doesn’t allow for many norms. When equilibrium is spoken about, it describes a price range which is known but not an absolute – value predictions are subjective.
The USD/INR does look like it is trading within realms which are too high. Current price action near the 74.600 level may not last for long. Resistance up above may be high and it may prove volatile after the last two days of trading which knocked plenty of speculators out of their short positions.
Selling the USD/INR into this bull rush upwards actually feels like the right decision. Yes, there may be an invisible hand powering the USD/INR higher, but why now and for what fundamental reason? Speculators will need to have their risk management solidly in place if they want to trade the USD/INR and pursue bearish momentum, but a look at a five-day chart does show that risk reward scenarios may be large if downward momentum develops short term.
Indian Rupee Short Term Outlook:
Current Resistance: 74.880
Current Support: 74.490
High Target: 75.030
Low Target: 74.040
