Balakot Bombing And Kashmir Escalation Find USD/INR Well Supported At 70.80

• India announced the bombing of an alleged terrorist in Balakot, Pakistan.
• The major escalation between the nuclear powers around Kashmir comes ahead of elections.
• The Indian rupee is falling against the USD and there is some room for an extension.

India announced it bombed a training camp of Jaish-e-Mohammad (JEM), in Pakistani territory, outside the disputed Kashmir region. The usage of aircraft in Balakot, in Pakistan's Khyber Pakhtunkhwa province, outside the war-torn area of Kashmir, serves as a significant worsening of relations. It came after pro-independence suicide bombers killed soldiers in Pulwama, part of the Indian-administered area of the region. Pakistan's Asif Ghafoor denied any casualties, saying the jets were scrambled and eventually withdrew.

The escalation should be seen in the context of the upcoming elections in India in May. India is the world's largest democracy and its PM Narendra Modi is trailing in the polls. But even if the bombing in Balakot is only an election ploy, things can get out of hand. The South Asian neighbors have fought several wars and both have obtained nuclear weapons.

USD/INR technical analysis

The tensions have weighed on the Indian rupee, sending USD/INR higher with a gap as the pair was testing support at 70.80.

The line cushioned a fall in late January and early February and worked as a substantial support line now. The 50-day Simple Moving Average provides additional support at 70.75 and the 200-day SMA is at 70.60. So, USD/INR may find it hard to fall.

Initial resistance awaits at the day's high at 71.35. Next up, we find the initial 2019 peak at 71.55, followed by the 2019 high of 71.90. Further above, 72.15 and 72.30 date back to December.

If Dollar/rupee breaks below 80.80, the next line to watch is 70.30 which capped it when it traded on lower ground around the turn of the year. 70.10 was a swing low earlier in February and is the last defense before the round number of 70.