JPY/INR Analysis: Big gains likely if Dow dips below 200-day EMA

The 200-day exponential moving average (EMA) line on the Dow Jones Industrial Average (DJIA) is the level to beat for the bears. As seen in the chart below, the bears have repeatedly failed to keep the index below the long-term EMA line in the last 2.5 years.

DJIA Daily chart

In case, the index finds acceptance below the 200-day EMA, then the bears will likely feel emboldened to push the index down to $23,000. The resulting risk aversion in the global markets could put a strong bid under the anti-risk JPY.

It is worth noting that the markets will look at the risk aversion triggered by the DJIA's drop below the 200-day EMA as a US story. As a result, the greenback will likely take a beating across the board. Indeed, the USD/JPY may invalidate the long-term bullish setup (pennant breakout on the monthly chart).

However, the safe haven JPY could see a much bigger jump against the Indian National Rupee (INR). This is because the risk-off led by the US stocks could trigger further fund outflows from India, thus keeping the INR on the back foot. Add to that higher oil prices and the INR may not benefit at all from the broad-based sell-off in the USD.

Interestingly, the JPY/INR is already teasing a long-term bullish breakout, as seen in the chart below.

JPY/INR monthly chart

A convincing move above the upper edge of the triangle of 0.6558 would validate the bullish view put forward by the ascending 5-month and 10-month EMA and could yield a rally to 0.70 (psychological hurdle) and 0.7220 (2012 high).

Technically speaking, a move below the 5-month EMA would weaken the bullish case.