Pullbacks continue to offer value.

The US dollar had a slightly positive session on Wednesday against the Indian rupee, as well as most other emerging market currencies. By rallying the way that we have, it looks as if the market is trying to build up the necessary momentum to break above the ₹77.50 level, perhaps kicking off yet another move higher. When you look at this chart, you can see that there has been a lot of bullish pressure recently, but it does make a certain amount of sense that we need to build up momentum to continue the bigger move.

Currently, I see the ₹77 level as an area of support, and I would be a bit surprised if we broke down below there. That being said, if we were to break down below there it does not necessarily mean that I would be a seller, because this is a market that has a lot of support all the way down to the ₹76 level, where we launched from just five sessions ago. It is probably worth noting that the 50-day EMA is just above there as well.

The central Bank of India will not fight the idea of the rupee depreciating, as long as it is orderly. As long as that is going to be the case, it is very likely that this remains a “buy on the dips” type of market, which could be said about most emerging market currencies. The US dollar continues to strengthen across the board, so I have no interest in shorting this market. However, if we were to break below the ₹76 level, I could start to question the overall trend. At that point, we would more than likely go looking to reach the 200-day EMA.

The only way I see this happening for anything approaching a longer-term trade to the downside is if the Federal Reserve suddenly changes its mind. That does not seem to be likely at this point, especially as the CPI numbers in the United States came out hotter than anticipated on Wednesday. With that, I think it is only a matter of time before we continue to see the greenback climb against the rupee, as the ₹70 level will be targeted sooner or later. Pullbacks continue to offer value.

I think that the market is going to try to go to the ₹77 level, which is where we had seen a significant pullback previously. 

On Monday, the US dollar initially pulled back a bit against the Indian rupee, but as we have seen time and time again, the US dollar recovered to show signs of life. The US dollar will continue to attract attention as long as we are concerned about global growth and risk appetite. After all, the Indian rupee is pretty far out there on the risk appetite spectrum, while the US dollar is considered to be as close to being risk-free as possible.

Further driving money into the US dollar is the fact that the interest rates in America continue to rise as the bond market selloff. This suggests that we are going to continue to see a lot of money flow into the United States as yields are much more attractive. That being said, we should also pay close attention to the fact that as risk appetite drops, it is a bit of a feedback loop going forward.

Looking at the technical analysis, you can see that the ₹70 level underneath has been interesting for both buyers and sellers. Furthermore, the 50-day EMA is sitting right there as well, so it does suggest that the ₹70 level might end up being a bit of a “floor the market” currently. The short-term pullback should continue to offer buying opportunities, especially as value hunters entered the fray. Ultimately, I think that the market is going to try to go to the ₹77 level, which is where we had seen a significant pullback previously. As you can see on the chart, I have a large figure market, and as you look at the chart you can see just how technical this pair tends to be. What this suggests to me is that if we were to get a daily close above the ₹77 level, we could go looking to reach the ₹78 level. I do not believe that the Bank of India is concerned about a depreciating rupee at the moment, as inflation is a big problem worldwide. Furthermore, the move has been relatively orderly, and that is important to central banks as well. It is the rate of change that gets people concerned and right now the rate of change is not out of control. As long as this is the case, I think you jump in and buy these dips as they occur.

The US dollar has fallen a bit against the Indian rupee during trading on Thursday but has found a bit of buying just below the ₹76 level. By doing so, the market ended up forming a bit of a hammer which looks quite a bit like a perfect “pull back and retest” of the overall trend. Because of this, if we can break above the top of the candlestick for the Thursday session, it is very likely that the pair will go looking towards the ₹76.50 level.

Market participants continue to see the US dollar as a greater value, as we have been in an uptrend. Furthermore, you have to worry about some emerging markets as a global slowdown is certainly going to be felt places. The Indian government is not only is the most business friendly, and therefore the US dollar does tend to “buck the trend” against emerging markets in this currency pair at times.

Underneath current trading, the ₹75.50 level might be an area of interest, as it has not only been structurally important previously, but it also has the 50 Day EMA moving into the same area. Because of this, I would anticipate that a certain amount of technical buying may occur if we get to that area. I do believe that it is probably only a matter of time before we continue the uptrend, but if we were to break down below the ₹75 level, then we might have bigger issues at hand.

It is difficult to imagine a scenario where the US dollar sells off for an extended amount of time, simply because the world’s economy seems to be slowing down and of course we have issues when it comes to a whole host of things, not the least of which would be a war in Ukraine. The US dollar is a safety currency, and while the cross between the greenback and the rupee is not necessarily one of the heavily traded currency pairs, US dollar strength or weakness across-the-board typically will have at least some effect on what happens here. Because of this, I think that we are setting up for a continuation of the rally and perhaps a move to the ₹77 level over the longer term. It might take a while to get there, but it certainly looks as if that is what we are setting up to do.