USD/INR: gap down open likely on “patient Fed”

• The rupee is likely to gap higher on dovish Fed. 
• 71.52 is the near-term level to beat for the bulls. 

The Indian rupee is likely to open higher against the greenback, courtesy of the dovish Fed. 

The USD/INR, pair which closed 0.22 percent lower at 71.22 yesterday, could drop below 71 in early trade. 

The US Federal Reserve kept rates unchanged as expected and said that the next move in rates could be up or down, discarding the previous language of further gradual rate hikes. 

It added further that the quantitative tightening program (balance sheet normalization) could be adjusted if the economy continues to trend south. 

Fed’s dovish turn is good news for high current account deficit economies like India, although the upside in the INR could be limited, given the uncertainty surrounding the national elections. 

The Indian currency could also come under pressure if the government gives a populist interim budget on Friday. 

Technically speaking, the gap down opening will neutralize the bullish outlook forward by the falling wedge breakout, confirmed on Jan. 18 and only a move above 71.52 would revive the bullish outlook. 

Technical Levels