USDINR Ideas - Does history repeat itself?
Ritesh Victor
Co-Founder Myforexeye Fintech Pvt Ltd; Ex Chief Treasury Officer-Trident Ltd; Ex-Mecklai; Ex-Evalueserve; CMT L3 candidate; NISM-RIA
If answers to the 2 questions I had asked yesterday is Yes to both, then please read ahead. Even if the answers are No, you can still read.
The chart on the left is USDINR daily chart from Aug 2018 to Jul 2019 while the chart on the right side is USDINR daily from 24 Feb 2020 till date. No doubt, the price patterns on the chart look quite similar – please do recognize that in actual financial markets, technical charts can be similar but rarely exactly same.
Check out both the charts together below:
The price pattern formed in Aug 2018 to Jul 2019 (highlighted by the red trend lines) subsequently lead to a substantial rupee weakening after a breakout of the downward moving red trend line. Rupee plunged from 68.50 – 69.00 to 72.00 – 72.50 in a month’s time (highlighted by the green oval). A similar price formation is currently taking place since Feb 2020 (highlighted by the blue trend lines). Assuming that History repeats itself (which it usually does), are we looking at a rupee weakening move towards 75.50 – 76.00 if the downward moving blue trend line breaks (currently around 73.50 – 73.70)? Quite a contrarian view considering that rupee closed today at its strongest level since Mar 2020 and rupee bulls rule the current markets.
Technicals aside, in the current forex market scenario, it is quite difficult to envisage a weakening rupee, considering the surging FII inflows (soaring Indian equities) and muted domestic dollar demand. Remember, markets have their own way of surprising everyone when participants are least expecting it.
Strong recommendation to exporters and importers to hedge using vanilla options – for at least 1 – 2 – 3 months. USDINR volatility in at multi-month lows, option premiums are extremely cheap. Not only will it provide protection, one can also capitalize on favourable market movements.