USD/INR: Trading Within Kumo With Potential Flag Pattern

Indian Rupee received a boost late last week due to continued weakness of USD, sending USD/INR below 59.0 round number for the first time since 16th July. However, price did not stay below 59.0 for long, with a rebound happening shortly after, sending price back above the 59.20 significant support.

Daily Chart
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From a technical perspective, trading above 59.2 keeps bullish pressure intact, but currently we are being kept lower by Kumo Top (Senkou Span A). Beyond that, descending Channel Top will provide additional downward pressure, potentially pushing price deeper into the Kumo and further down the Channel. However, given the fact that Stochastic readings are closing in to Oversold region, it is unlikely that price will be able to head below 57.0 based on this singular move. Furthermore, given the broad bullish uptrend, as long as price does not break the Kumo nor 57.0 on the downside, current descending Channel can still be interpreted as a Flag, which is essentially a bullish continuation signal. This will be confirmed should price break above Kumo once more, opening up 61.0 as the 1st bullish target and push prices for bullish extension.

RBI is expected to keep its key repo rate unchanged during tomorrow’s rate decision meeting, unlike its counterpart in Turkey, Brazil and Indonesia. A rate cut is totally out of the picture given the weakness of Rupee currently, while a rate hike is unlikely due to the extreme slowdown expected in India’s economy. Despite the rate not moving, we could still use it to determine whether the underlying bullishness which brought USD/INR from 53+ to the 61+ levels is still around. Keep a lookout on the market reaction when the expected non-event play out. Should USD/INR continue to rally despite no changes in the rates, it is likely that market is simply looking for reason to buy USD/INR, which is in favor of a long-term bullish rally, in line with the technical flag formation. Furthermore, it should be noted that the fall in the recent USD/INR can only be attributed to USD weakness, and not due to INR strength. Should a return of USD strength come back again, we could see further pressure to send USD/INR much higher than before.

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