Indian Rupee

The USD/INR seems to be forming a clear double bottom pattern, which puts the odds in favour of the dollar. A sustained break of 48.90 should set the stage for a test of 50.20-50.40 near term .Given the recent range-bound movement in the pair, could expect to see a swift volatile move upon this breakout

Has the dollar made an important bottom?

The above chart traces the path of the dollar index-measures the dollar against a basket of currencies.

The move from April/May 2008 – 71 lows to near 90 in late March ’09 appears to have unfolded in 5 waves – IMPLUSE WAVE

To complete the Elliot pattern, there must be a 3 wave correction and the move from 90 to the recent 77.50 appears to have fitted into this 3 wave corrective pattern.

If the above wave count is right, then we could see the dollar beginning its next 5 wave impulse towards 90 conservatively.

Agreed, it may seem a little too early to call for a massive dollar rally in the upcoming months, especially given that the index is still trading below its 200 day EMA – however, we would get a clearer confirmation of the above wave count if in the next couple of weeks we get to see the index trade above 81.50

The path of least resistance at the moment is more towards dollar strength – which tilts the preferred strategy towards “buying the dollar on dips” rather than “selling upon rises”.

In case of any selling, selling dollars for the near maturities (3-5 months) would be preferred rather than longer tenures (5-12 months)