Rupee Faces Technical Hurdles as Yuan Weakness Fuels Rally – Will the Momentum Hold?

The Indian rupee (INR) has been on a steady climb against the Chinese yuan (CNY) in early 2025, driven by bullish technical indicators and shifting market dynamics. However, traders are now eyeing critical resistance levels and overbought conditions that could test the currency’s resilience. With the INR/CNY rate hovering near ¥0.0859, the coming weeks will determine whether the rupee’s rally can sustain momentum or succumb to short-term corrections.

The INR’s Bullish Run

Recent data underscores the rupee’s dominance. As of early April, the INR/CNY rate is projected to average ¥0.085947 by month-end—a 0.33% gain from current levels. Analysts attribute this to the rupee’s positioning above critical technical thresholds:
- 50-Day SMA: ¥0.084315 (current rate is +1.6% above this level)
- 200-Day SMA: ¥0.084641 (current rate is +1.5% above this level)

These crossovers signal strong upward momentum, with all short-term moving averages (3–21 days) and exponential moving averages (EMAs) lying below the current rate. This setup typically encourages further buying, particularly as traders anticipate a potential breakout above the ¥0.086166 resistance—the April high.

Technical Indicators: A Mixed Signal

While the fundamentals appear bullish, overbought conditions in key metrics raise caution. The 14-day RSI for INR/CNY has hit 72.48, breaching the overbought threshold of 70—a sign of potential near-term exhaustion.

Historically, such extremes often precede pullbacks, even if the broader trend remains intact. Traders will watch closely for a retreat below the ¥0.085731 support level, which could reverse the bullish narrative. Meanwhile, the CNY/INR pair’s 14-day RSI of 27.63—deeply oversold—adds further evidence of the rupee’s strength.

Support and Resistance: Key Levels to Watch

• Resistance: A breach of ¥0.086166 would open the door to higher gains, potentially targeting ¥0.0865 by mid-April.
• Support: A drop below ¥0.085731 could trigger a sharper decline, with the 50-day SMA (¥0.0843) as the next critical defense.

Daily fluctuations, such as the ¥0.085956 high forecast for April 26, will test traders’ nerves. Volatility remains low—0.37% over 30 days—but geopolitical risks or central bank interventions could amplify swings.

Risks and Considerations

The rally is far from guaranteed. Key risks include:
1. Overbought RSI: The current reading suggests a pullback is overdue, even if the longer-term trend is bullish.
2. Geopolitical Tensions: Escalating India-China trade disputes or regional instability could destabilize the pair.
3. Policy Shifts: A shift in monetary policy by China’s PBoC or India’s RBI could alter currency dynamics.

Conclusion: Ride the Rally, but Mind the Risks

The INR’s technical setup remains compelling, with 100% of indicators signaling buy opportunities. The ¥0.086166 resistance is the next logical target, and traders who buy dips near the ¥0.085731 support could profit from the trend. However, the overbought RSI (72.48) demands caution—any retreat could offer better entry points.

Investors should prioritize discipline:
- Target: Aim for ¥0.086166 in the short term, with ¥0.0865 as a stretch goal.
- Risk Management: Set stop-losses below ¥0.085731 to limit losses if support fails.

Ultimately, the rupee’s rally reflects its robust technical foundation, but the path to higher gains will require navigating short-term volatility. As April progresses, the currency’s ability to clear resistance while avoiding overextension will be the true test of its strength.