Signals Suggest More Weakness For India's Rupee

A few days ago, India's rupee hit an all-time low when it briefly crossed above 80 to the U.S. dollar. Analysts suggested the selloff was due in part to the global strength of the dollar and investors becoming more risk averse.

The rupee has fallen 6.44% against the dollar this year, an amount less than the 10.97% gains seen in the dollar as measured by the U.S. dollar index. Part of the reason the rupee has dropped less may be tied to its central bank selling dollars to prevent the rupee from sliding sharply. India's foreign exchange reserves dropped around $53 billion this year, according to The Wall Street Journal.

So, where does the rupee go from here? At Excalibur Pro, we use the Markov process as one of the unique indicators to help see trends and directions. And Markov right now is showing more weakness ahead for the rupee. As you can see from the chart, when Markov's state 1 has remained strong over a period of time for INRUSD, the price has gradually weakened. Another interesting chart shows the relationship between volatility and price movement - the higher the volatility, the lower the price moves. And that's exactly what we continue to see today.