As trends tend to continue, one would assume that the next move is more likely to the upside than the downside.
The US dollar pulled back during the trading session on Thursday, as the INR78 level continues to offer a lot of resistance. The Indian rupee of course is an emerging market currency, and most EM currencies have been punished for some time. It makes sense that after we have rallied the way we have, the markets may need to digest some of the excess froth in this market. If they do continue to see a lot of upward pressure on the greenback overall, it most certainly will be felt over in this pair.
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Breaking above the INR78 level allows the US dollar to start appreciating yet again, perhaps reaching the INR78.50 level, and then eventually the INR79 level. Pullbacks at this point still have plenty of support underneath, namely the INR77 level that we have not even touched yet. The 50 Day EMA is at the INR76.50 level and rising. This is an uptrend and a very strong one at that. Because of this, I am choosing not to short this market and will be much more comfortable buying dips as they occur. Ultimately, I do think this is a market that will give us an opportunity to find value every time it pulls back, and it is not until we break significantly below the INR76 level that I would start to worry about the market.
The size of the candlestick is not necessarily compelling, it is just a continuation of what we have seen over the last several days. This tells me the market is trying to build up enough inertia for its next move. As trends tend to continue, one would assume that the next move is more likely to the upside than the downside, so therefore I am more value inclined for that reason as well. In fact, I believe that most emerging market currencies are going to continue to struggle, which they should in a “risk-off” type of environment. As long as that is going to be the case, there is no way I would be a seller of this pair, or any of the other emerging market currencies paired against the greenback. Greenback still remains supreme, and as long as there are concerns about the global market slowing down, it is difficult to imagine a lot of money flowing into a place like India.