Indian Rupee hits major hurdle, could reignite EM currency concerns

Last year’s emerging market (EM) currency crisis saw the likes of the Turkish Lire (TRY) and Indian Rupee (INR) repeatedly drop to new all-time lows. While concerns have eased sharply over the past few months, the long-term trends on these developing currencies remain bearish. So, EM currency crisis could resurface again in the coming months, if investors unwind their bullish bets on these currencies and equities, after a very positive first quarter – especially for the INR.

In fact, the Indian Rupee has hit resistance today, causing the USD/INR to bounce sharply off a key long-term support area, ahead of tomorrow’s rate decision by the US Federal Reserve. As per the weekly chart, below, the area between 68.30 and 69.22 was a major resistance zone in the past, which could now offer support. Interestingly, we have seen a potential reversal already here: a bullish engulfing daily candlestick pattern (see inset). So, watch the USD/INR and other EM currency pairs closely to see if things develop further in the coming days. For now, this is merely a warning, but one that cannot be ignored.

Figure 1:

Source: TradingView and FOREX.com. Please note, this product is not available to US clients