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.