Over the past two months, the rupee has rallied against several of the most widely traded currencies in the world, including the U.S. dollar, euro, British pound, yen and Australian dollar. With that said, the rupee's rally versus the U.S. dollar was short lived, and the pair is now back toward 2.5-year lows, suggesting that it remains vulnerable and that further weakness may be ahead.

Below is a daily chart of the INR/USD pair showing its mid-May rally back toward former support turned resistance near 0.0152, where prices were quickly rejected and pushed back to 2.5-year lows near 0.014510. Of all the major currencies mentioned above, the rupee remains weakest against the U.S. dollar, and the more times this support level is tested, the more likely it is that we see a break to the downside.

[I teach investors all about using support and resistance levels to analyze charts and develop a trading strategy in Chapter 3 of my Technical Analysis course on the Investopedia Academy.]

Chart showing the performance of the Indian rupee vs. the U.S. dollar

If prices close below 0.014510, that would confirm a breakdown and suggest that we want to be short the rupee against the U.S. dollar and taking profits nearly 5.5% lower at 0.013703. Our risk is very well defined, and the reward/risk will be ridiculously skewed in favor of the bears if/when we see that break of support.

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