USD/INR: Bearish Setup Awaiting Confirmation

Rupee weakened against the Greenback today, an unexpected move considering that USD actually weakened against its major global counterparts today due to a higher likelihood that the US Government Shutdown will drag longer. Hence this should have meant a lower USD/INR, not higher. Furthermore, the technicals actually favor continued bearish movement this week as last week’s closing level was the lowest since 9th August, and prices have successfully traded into the rising Channel, which should have illicit stronger bearish response this week.

Weekly Chart
USD/INR Weekly" title="USD/INR Weekly" src="https://d1-invdn-com.akamaized.net/content/pic9c506abf056978d905243d7185d9060a.PNG" height="313.28275862069" width="undefined">
However, when we consider that the fundamentals for a strong rupee remains weak, it becomes understandable why USD/INR do not dare to fully commit. Also, from a technical perspective, a rebound from here to test Channel Top is not necessarily a bad thing, as it allow us to confirm the break of the Rising Channel Top. It will be even better if Stochastic readings rally up but fail to overtake the 50.0 level and push down from there, providing another confirmation which will go a long way to beef up bearish conviction especially if fundamentals for Rupee continues to remain weak.

2 Hourly Chart
USD/INR 2 Hourly" title="USD/INR 2 Hourly" src="https://d1-invdn-com.akamaized.net/content/picd79a6a8d2a5f9d1eff9cad64bd6418cc.PNG" height="312.50344827586" width="undefined">
In the short-run, 61.70 is expected to provide some resistance with Stochastic readings agreeing as Stoch curve is entering Overbought region and expected to make a U-turns soon. If a bearish stoch signal is formed together with price turning around and preferably breaking 61.5 soft support, we could see strong short-term bearish flow pushing prices down towards 61.0 and potentially lower, with descending trendline providing as the ultimate short-term bearish target.

Even though with both short-term and long-term technical outlook looking bearish, going short right now is still considered risky as the fundamentals just do not line up right. Furthermore, considering that today’s rally came despite USD weakening, it would stand to reason that prices may be even more bullish when USD regain back its strength when the whole Debt Ceiling/Government Shutdown fiasco is over. A lesser factor but nonetheless impactful factor would be the Deepavali celebration which is approaching. Indians tend to import large quantities of Gold during this period which will depress Rupee further.

Certainly the rewards for going Short USD/INR based on technicals will be high with Channel Bottom as the ultimate target. The huge carry yield Rupee holders will get sweetens the deal further. But under this fundamental backdrop, the risks are extremely high as well. Enter at your own peril.

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