The Indian rupee has bounced back in the past two weeks, making it one of the top-performing currencies in the emerging market. The USD/INR exchange rate ended the week at 87.98, down by over 1% from its highest point this year. Still, it remains about 5% above the lowest level this year.

The Indian rupee has rebounded as investors remained optimistic that the United States will reach a trade deal with India in the coming month. In a recent statement, a senior Indian official noted that the two were close to an agreement. 

Media reports suggest that the two have reached an agreement on the most pressing issues. The only remaining issue is on India’s continued import of Russian crude oil. 

A trade deal between India and the US would greatly help the former as a recent trade report showed that its deficit jumped to over $32 billion, the highest point this year. This happened as exports rose by 6.7% to $36.8 billion, while imports soared by 16.7% to $68 billion. 

A trade deal would likely see the US drop the current 50% to possibly 15%. It is unclear whether the deal will include the issue of the H1-B visa, on which the US raised its fees on recently. It moved the fee from less than $300 to $100,000, which will disproportionately affect India.

The Indian rupee has also rebounded after an intervention by the Reserve Bank of India (RBI), which became alarmed as the currency deteriorated. It did that by selling dollars from its forex reserves.

The bank had previously built short US dollar positions worth about $15 billion. By doing that, the bank was effectively betting the US dollar and hoping that the currency would rebound.

USD/INR technicals played a role

USD/INR chart | Source: TradingView

Meanwhile, technicals also played a role in the recent Indian rupee comeback. Before the rebound, the pair has stalled at around 88.86. That was a notable level where it failed to move above for weeks. It effectively formed a triple-top-like pattern.

The pair also formed a bearish divergence pattern as the Relative Strength Index (RSI) and the MACD indicators moved downwards. This divergence is a popular bearish reversal sign. 

The pair has also crashed as it retests the important resistance at 88. Therefore, the most likely scenario is where the pair resumes the uptrend in the near term. That’s because it has formed a break-and-retest pattern, which is a bullish continuation sign. 

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