The USD/INR rallied a bit during the trading session on Wednesday, to break above the ₹82.50 level, before attempting to do the same thing on Thursday. At this point, it looks like there’s a lot of resistance above, so it is possible that the rupee is going to pick up a little bit of strength there, which makes a certain amount of sense considering that the Nifty 50 has attracted a certain number of inflows. That’s not to say that the rupee is suddenly going to spike in value against the US dollar, but it does make a certain amount of sense according to cross-border flows.
The 50-Day EMA sits near the ₹81.59 level. Ultimately, this is an area that I think offers a little bit of short-term support, and it does suggest that perhaps we have further to go to the upside if we bounce in that area. Alternatively, if we take out the top of the shooting star from the Wednesday session, then it’s likely that we could test the ₹83 levels. Anything above there then opens a much bigger longer-term type of situation. This would make a certain amount of sense if interest rates remained strong, and of course, the Bank of India will have a significant part to play in this equation, as they tend to pay close attention to the exchange rate. Furthermore, they recently raised interest rates by 35 basis points, so now that could provide a little bit of strength for the Indian currency.
Waiting for the Federal Reserve
You should also keep in mind though that this is a reflection of risk appetite, and whether people are willing to step out on that curve. The US dollar should strengthen if there is fear out there, but if we start to see the Federal Reserve suggest that perhaps they are stepping away from tightening, we could see this market drop.
CPI numbers coming out of the United States on Friday could give us a little bit of a move as well, but we have the Federal Reserve meeting and the middle of next week that will also have a major influence on the value of the greenback, and therefore the value of the greenback against the rupee. At this point, it looks like a short-term pullback is in the cards.
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