The US dollar initially tried to rally on Wednesday but then turned around to show signs of weakness yet again. By the end of the day, the market ended up forming a bit of a “inverted hammer”, which suggests that we could either turn around and explode to the upside in what would be a recovery move, or we could break down rather significantly.
When you look at the last four or five sessions, you can see the US dollar has been hammered against the rupee, as Jerome Powell was much more dovish last week than anticipated. Because of this, I think that you need to keep in mind that we will continue to look at the possibility of continuation, as traders continue to step out on the risk spectrum, which India represents. Furthermore, the coronavirus situation in India has gotten a lot better so that has helped the rupee as well.
If we break below the bottom of the candlestick from not only Tuesday but also Monday, it is likely that we will go looking towards the ₹72.50 level, and then possibly even the ₹72 level. Sooner or later though, the Indian National Bank will lose its sense of humor about the emergent strength of the local currency, which is something that a lot of people pay close attention to. On the other hand, if we break above the inverted hammer then I believe that the market will more than likely go looking towards the ₹73.50 level, which is an area where the selling pressure picked up just a couple of days ago. This pair does tend to move in ₹0.50 levels, so you need to pay close attention to them.
Above there, we have the 200-day EMA reaching towards the ₹73.80 level, and that could cause a little bit of noise itself. Nonetheless, we had broken through that rather quickly the other day, so I am not sure whether or not it will hold the same type of weighting it normally would. Regardless, this has essentially set up a “binary trade” when it comes to the candlestick for the trading session, so I think we will simply take the trade in the direction of a breakout of the last 24 hours.
