The sentimental rupee

The Indian rupee's wave impulse on the down seems incomplete, making a case for further appreciation.

The INR touched our anticipated level close to 40. In the Smart Investor dated December 4, 2006, we said, "The currency is headed down to 43 and lower, despite what the RBI does, despite macroeconomic conditions and despite the seasoned trader."

When we hit 43, we carried the next rupee update on April 2 saying, "The long term trend remains near 40 vs. the dollar". Well, the wait was not too long, as in barely two months the INR managed to touch 40.14, missing 40 by a whisker.

And where do we go from here? There are several ways to get an answer to this. We can try interpreting the story and see the correlation between the Rupee and the Sensex, or the talk about the wave of capital flows, or the drivers behind the Indian economic story, which never tires and knows no cycles.

Not to forget, we can try comprehending the Reserve Bank endeavours to curb volatility in the local currency, which saw a free fall of 15 per cent in less than a year. Other reasons might lie in the forex reserve settling at a new high.

Some might even look out of the box. What is the rupee strengthening against? It's the Dollar. So if the Dollar Index continues to weaken, the INR will strengthen against its counterpart. So may be, the stories should be pegged around Dow and not the Sensex.

So as you see, there can be more reasons, innocuous and silly. For us at Orpheus, it's not over yet. And markets, like Keynes said, can remain irrational longer than you can remain solvent.

So just that 40 seems a good psychological level, and good enough for a pause, can't be a reason for INR to pause. The psychological or wave impulse down seems incomplete.

We will be surprised if any bounce back takes the INR beyond the 42 level. We see this as a coiling continuing action. The main trend still seems down to near 38 or lower. Above 42 we review.