The Hindu Business Line : Near-term trend positive in rupee

The foreign exchange market greeted the news of the UPA Government winning the trust vote with a thumping rally in the rupee. The Indian currency appreciated to 42.07 on Wednesday.

Rupee has much to gain from the development. The stability in the Government is likely to assuage investor sentiment in the stock markets leading to higher FII inflows. Putting the various proposals such as increasing FDI limit in insurance, divestment of public sector undertakings and the pension reforms on a fast track would further aid the rupee and the economy. The proposed $150 billion, that is waiting to be invested in nuclear power facilities once the deal is through, is also a positive from the long-term perspective.

Part of the rupee gains should however be attributed to the crude prices melting from $147 to $128 on concerns of a demand slow-down in US and other emerging countries. Meanwhile, dollar recovered from the lows on hints from some Federal Reserve official about a possible rate hike this year and the commitment towards a strong dollar.

1-month view

Our medium-term range for the rupee remains between 41.6 and 44. The currency’s appreciation towards 42 over the past few sessions implies that the fourth wave from the 39.02 peak could still be in progress. The minor ‘c’ of this irregular flat pattern has the targets at 42.1 and then 41.8. Once this move completes, the downward moving fifth wave would take the Indian currency towards 43.5 again.

The completion of the decline from 39.02 and the correction of this decline would result in the currency remaining in the afore-mentioned band between 41.6 and 44. The medium term outlook remains negative as long as the currency remains below 41.6.

5-day view

The near-term trend in the currency is positive. The immediate resistance for the currency is at 42. If this level is surpassed, the currency would have to grapple with the key resistance band between 41.8 and 41.6. The upcoming monetary policy review next week is likely to plug the rupee appreciation beyond 41.6. Near-term supports would be available at 42.6 and then 42.9.

Supports – 42.6, 42.9, 43.5

Resistances – 41.8, 41.6, 41.3

Lokeshwarri S. K.

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