India’s rupee may drop as much as 5 percent after wiping out three days of gains yesterday to signal a rally for the dollar, according to London-based City Index Ltd.
The rupee yesterday closed lower against the greenback than the opening price on Sept. 2 to form an “outside day” chart pattern, which is a “very bullish short-term formation” for the U.S. currency, said Michael McCarthy, head of Asia-Pacific dealing at City Index in Sydney. The dollar is also poised to test a level of resistance, which if broken points to further gains, he said.
“We have a short-term bullish trend reversal signal for the dollar, which usually means it may move higher in the very near term,” McCarthy said. “I usually don’t put a target for such short-term signals but there’s a triangle formation going on and if we break the top of that, which is around 47.05, we could see a three to five percent move up,” he said, declining to say how quickly that might happen.
The rupee closed yesterday at 46.84 per dollar in Mumbai and was little changed today at 46.81 as of 9:11 a.m. local time, according to data compiled by Bloomberg. It has slumped 0.7 percent this year, the second-worst performance among Asia’s 10 most-active currencies excluding the yen.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is a level where sell orders may be clustered, while support is where buy orders may be found.