Today’s news of the death of General Soleimani has sent shockwaves across the financial markets, and the Indian Rupee, USDINR, has not been left untouched.
As the US market was about to open for trading, USDNIR was up by 0.77% on the day, while other emerging market currencies such as the South African rand also losing out.
If the geopolitical tensions continue to turn higher, then the Indian Rupee might extend its decline as India import 82% for their oil needs, and that makes them sensitive to changes in crude oil prices.
Technically the situation in USDINR is neutral but nonetheless interesting. The USDINR is trapped between the September 26 low of 70.34, and the November 13 high of 72.25, in what is a rectangle trading pattern.
The rectangle trading pattern is interesting as the price action tends to remain subdued within the rectangle until the price breaches either side of the price range. If the price breaks the upper resistance leaves at 72.25, the USDINR might rally by the same amount as the difference in the range, and reach the 74.16 level. A break to the lower limit at 70.34, might send the price to the 68.45 level.
Given the tension following the death of General Soleimani, a bullish breakout looks more likely than bearish decline. The Dollar to Indian Rupee exchange rate trend was also already in a bullish mode ahead of today’s news.
In August the USDINR took some substantial leaps higher, with the most significant moving happening on August 5, on that day the Rupee suffered its most significant single-day drop in the past six years. On that day the Indian Government removed the special status of Jammu and Kashmir states, which had granted them complete autonomy, and ability to write their own laws barring defense, finance, communications, and foreign affairs. The Indian government also suggested splitting the state into two federal territories. To back up their move, India sent thousands of troops to Jammu and Kashmir states
Trade war tensions were also cited as a reason for the drop as China on that day allowed their currency to decline below the 7 Dollar mark as a response to President Trump imposing 10% tariffs on an additional $300bn worth of Chinese products. In return, President Trump said it was currency manipulation.
Since those summer days in August, the Indian Rupee has not been able to claw back its losses, and the latest geopolitical tensions might be what triggers another leg of Indian Rupee weakness.