USD/INR stuck in range-bound market

After a pandemic ravaged year, the risk sentiments are ending 2020 on a positive note on the back of US fiscal stimulus, Brexit deal and coronavirus vaccine. However, until the global economy is capable of recovering at a rapid pace once COVID-19 is defeated, the upside risk to USDINR spot will remain intact. With the viable vaccine's ability to battle even the transmissible variant of the virus, the worries of further lockdowns has been eased. But the lockdown concerns in some parts of US can't be ruled out as the variant virus has been spreading across countries including Japan, France, Canada, US, India. So going ahead what happens to Indian rupee largely depends on how the major economies controls the virus in 2021. Vaccines will soon offer relief, but for the immediate horizon, global growth will continue to be slow. As a result, as we enter January 2021, if the variant of the virus starts to spread rapidly within the US, the pressure will build up on the incoming Biden administration to ramp up government stimulus, along with ultra-dovish Fed policy, weighing on the world's reserve currency.

 In USDINR spot, since the start of December, the psychological level of 74 has not been breached and the spot is trading below that. As seen in the daily chart, USDINR spot is trading near 73.30 which is its crucial Bollinger band's lower level support zone. However, a reversal is expected from this to find strong resistance at 73.70 (key 61.8% Fibonacci Retracement level) and 73.80 (top-to-top trend line as well as Bollinger band's upper level). If the pair breaches and sustains above 73.85 then 74.15/74.25 is foreseen. However, is the prices falls and consistently trades below 73.25 then next support is observed at 73.0-72.75-72.50. So we expect the short term trading range to be 73-74, only either side breakout will provide further clarity over the trend.