Charts portend a fresh low for the rupee

A long-term analysis on the charts suggests that there is a high possibility of the Indian rupee revisiting the previous low of 68.85 (August 2013) and subsequently falling to a fresh low. Charts give a target range of 69.5 to 72.5. After recording a fresh low, the rupee can reverse higher towards 67 or even 65.

Here are the arguments from the charts that strengthen the case for the rupee falling to 70-72 levels, going forward.

Looking back at the history since 2008, every time the rupee recovers from its fresh lows, the strength in the rupee has always been limited to around the 61.8 per cent Fibonacci retracement level. A reversal and a fresh fall thereafter have always resulted in the rupee recording a new low.

The recovery from the all-time low of 68.85 recorded in August 2013 halted at 58.33 in May 2014. The 61.8 per cent Fibonacci retracement level is at 58.05. If history has to repeat itself, the rupee is more likely to fall to a new low in the coming months.

Secondly, the reversal from 58.33 has also happened from a strong long-term trend line resistance as well as a key support-turned-resistance channel line. This indicates that the upmove from the low of 68.85 is just a corrective rally of the broader structural long-term downtrend in rupee and the fall from 58.33 marks the beginning of a fresh leg of the down-move.

Also, the price action since the May 2014 high of 58.33 is in the form of a bear channel. The channel resistance has been holding very well and limiting the upside in the rupee since April. The channel support is around 71. While the currency remains within this channel, it is more likely to target 71 in the coming months.

The price action between October 2013 and June 2015 shows a head and shoulder reversal pattern on the charts.

This is a bearish pattern and the breakout of it had happened in July 2015 when the currency declined decisively below the neckline support level of 64. The target of this pattern is 69.5

Another study based on the Fibonacci extensions gives a much lower target for the rupee compared to that obtained above. Barring the fall to 68.85, every time rupee breaks below its previous low, the currency has always dropped to the average level between the 61.8 per cent and 100 per cent of the Fibonacci extension target levels. The target based on this study signals that the rupee has room for a fall to even 72.45.

Collating all these indications from the charts, it is evident that the long-term structural downtrend in the rupee is intact and a fall to 70 or even 72 looks likely.

However, rupee can reverse higher after recording this fresh low. Assuming that rupee falls to 72, a reversal from there can take the currency higher to 68 or 67. If that leg of up-move manages to break above 67, then rupee can strengthen further to 65 or even 64. So 64-72 is the possible range for the next 12 months.