The US dollar pulled back just a bit during the session on Tuesday to reenter the previous consolidation of the USD/INR currency pair. The Indian rupee does tend to be very choppy at times, as it is a relatively centrally planned currency. The Bank of India tends to be very active, so it’s worth reading the latest blurbs on its site.
The US dollar has been climbing against the rupee for some time, and now it appears that we are consolidating. Consolidation typically leads to continuation, and therefore I think that if we can break above the ₹78 level, this pair has the ability to go much higher. At that point, becomes more of a “buy-and-hold” type of market. Ultimately, you should also pay attention to how the US dollar behaves against multiple emerging market currencies because they all do tend to move in the same direction.
A lot of this is going to come down to concerns about global growth, which India needs in order to sustain its economy. These emerging market economies are extraordinarily sensitive to fluctuations in global demand, so you need to be cognizant of what the global economic outlook is. If it continues to deteriorate, it does make quite a bit of sense of the US dollar will continue to attract inflows.
If we were to break down below the ₹77.50 level, then the market is likely to go looking to reach the 50 Day EMA, which is currently at the ₹77 level. That should offer a bit of dynamic support, but if it does not, then we are more likely than not going to see a rather deep correction. Keep in mind that risk appetite has a huge part to play in this market, so if you start to see markets around the world deteriorate as far as risk appetite is concerned, this is a pair that can be used to express the need for safety.
The noisy behavior in this market is nothing new, as it does tend to be very choppy in general, so you will need to be patient. It is not typically a pair that moves very quickly, unless of course there is some type of major event. At this point, the next major event will more likely than not be the inflation numbers coming out on Friday.
