USD/INR Bearish Below 62.0 But Long Term Follow-Through Suspect
Mingze Wu | Dec 02, 2013 02:32AM ET
Hourly Chart
The Indian Rupee continues to strengthen this morning, with USD/INR currently testing the 62.0 round figure support. The main reason for this gain can be attributed to inflows of funds into Indian stocks on the back of improved economic sentiment in India following a much stronger than expected Q3 GDP print (+4.8% Y/Y vs 4.6% expected and 4.4% previous), which drove main stock index Sensex up by 1.25% last Friday.
Latest official Chinese Manufacturing PMI numbers which were released over the weekend further fuel risk appetite, piling bearish pressure on USD/INR as Sensex continuing trading higher. This additional bearish push will go a long way in helping USD/INR bears break away from the sideways channel that prices have been stuck in since 26th Nov, and we could potentially see further bearish movement (breakout) if risk appetite remains bullish.
Weekly Chart
Technicals from the weekly chart favors bearish push towards 61.3 (the ceiling of July consolidation). Further bearish objectives may be possible as the affirmation of Channel Top holding naturally opens up Channel Bottom as the ultimate bearish target. However, similar to Short-Term chart, Stochastic indicator is close to "Oversold", favoring a hold of 61.3 support and not an immediate move towards Channel Bottom (or perhaps even 59.0 Consolidation Floor), hence traders need to be aware that bearish follow-through may not be as strong as they think and additional confirmation may be needed.
Furthermore, Fundamentals do not support a stronger Rupee. Even though latest GDP data is heartening, it should be noted that it is much lower than initial estimates of around 6+% which was made earlier this year. Also, economists have estimated that India will require a Y/Y growth of around 6.5% in order to sustain current labor market, any number below 6.5% would mean that we could be seeing more unemployed in the future. Hence, current euphoria about India's economy is only due to the bar being set too low, and increase the risks of an eventual bullish pullback when Rupee starts to weaken once again.
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