Sentimental Rupee

INR touched our anticipated level near 40. This is what we said on December 4, 2006, “The currency is headed down to 43 and lower, despite what the RBI does, despite macroeconomic conditions, despite the seasoned trader”. When we hit 43, we carried the other rupee update on Apr 2 saying, “The long term trend remains near 40 vs. the dollar”. Well it was not that long, as in barely two months INR managed to touch 40.14, missing 40 by a whisker.
And where do we go from here? We can have many answers to this question. We can try interpreting the story and the correlation of the Rupee and Sensex, or the talk about the wave of capital flows, or the drivers behind the Indian economic story, which never tires and knows no cyclicality. Not to forget, we can try comprehending the Reserve Bank endeavors to curb volatility in the local currency, which saw a free fall of 15% in less than a year. Other reasons might lie in the forex reserve leveling at new highs etc.
Some might even look out of the box. What is the rupee strengthening against? It’s the Dollar. So if the Dollar Index continues to weaken, INR will strengthen against its counterpart. So maybe, the stories should be pegged around Dow and not the Sensex. So as you see, there can be more reasons, innocuous and silly.
For us at Orpheus, it’s not over yet. And markets like Keynes said can remain irrational longer then you can remain solvent. So just because 40 seems a good psychological level, good enough for a pause, is not the reason the INR might pause. The psychological or wave impulse down seems incomplete. We will be surprised if any bounce back on INR crosses the 42 levels. We see this as a coiling continuing action. The main trend still seems down to near 38 or lower. Above 42 we review.