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Yesterday, the Indian government announced the country’s biggest economic contraction in 24 years.

The economy contracted by 23.9% in the three months ending in June, compared with the previous year.

Ever since the government began publishing quarterly GDP figures in 1996, it is the fastest decline on record! 😱

The slump in the world’s fifth-largest economy was worse than economists expected.

And based on the data from the Organization for Economic Cooperation and Development. (OECD), it’s the worst GDP decline among the world’s major economies for the same quarter.

This wasn’t the only bad news yesterday in India either.

India also reported 78,512 new coronavirus infections, more than any other country.

The day before, India set a WORLD record for the highest single-day increase of COVID-19 cases, with 78,761 cases.

As the second-largest country, with a population of 1.4 billion people, India has the fastest-growing daily coronavirus cases of any country in the world. 😢

While it took almost six months for India to record 1 million cases, it only took three weeks to hit 2 million, and then only 16 days to hit 3 million.

Overall, the U.S. and Brazil still have more COVID-19 cases, but India is on course to top Brazil, and maybe even the U.S., if new cases don’t decelerate.

India is new hotspot

So we have horribly negative news come out the past few days that basically says that India is in the middle of an economic AND health crisis….what happens to the Indian rupee against the U.S. dollar?

It strengthens. 🤷‍♂️

USDINR - 09/01/2020

You would think that with all the bad news, the rupee would weaken but the price action shows that the FX market doesn’t seem worried at all.

Even ongoing border tensions between India and China seem to have minimal effect on the rupee.

So if this is the case, then I expect the rupee to continue to strengthen, which means USD/INR will continue to fall.

In the chart above, we can see that the 74 handle was a major support level, as price stayed above that level since mid-March.

Price finally broke down below that level.

AND the price also broke down below its 200 SMA (blue line).

This is very bearish for the currency pair.

Between last August and this past February, USD/INR traded in a tight range between 70.5 and 72.

I now expect the price to try and fall back within this range.

The next major support level is 72. If the price can break through that, then I look for the price to retest 70.5 once again.

On MarketMilk™, the Trend Following Rating for USD/INR is definitely bearish.

USDINR Trend-Following Rating

I have two trade ideas, an aggressive one and a conservative one.

Aggressive:

Short USD/INR at 73.00.

My initial stop loss (SL) will be 74.30. 

This stop is placed above the 200 SMA (which should act as dynamic resistance) and above the high of the breakdown candle (of Aug. 27).

My profit target (PT) will be 70.50.

Conservative:

Wait for the price to rise and retest the 200 SMA (blue line).

Short USD/INR at 73.70 (or when the price touches the 200 SMA).

My initial stop loss (SL) will be 74.30. 

This stop is placed above the 200 SMA (which should act as dynamic resistance) and above the high of the breakdown candle (of Aug. 27).

My profit target (PT) will be 72.00, which is the next major support area.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.