The Hindu Business Line : Rupee near key resistance

The steep climb in the rupee caused by the sell-off in crude prices and the victory of the UPA government in the no-trust vote was arrested at 41.7 against the dollar. Terror attacks in two Indian cities and the resultant decline in equities were the main reasons behind this reversal in sentiment.

The monetary policy review on Tuesday had no effect on the currency markets. The positive impact of the hike in interest rates on the rupee was offset by the cessation of special market operations in oil bonds by the central bank. The downward pressure on the rupee is now likely to return as the oil marketing companies queue up to buy dollars to pay for oil imports.

FIIs turned net sellers over the last few sessions; thus contributing to the rupee’s decline. The US dollar index is displaying strength and has moved above its medium term down-trend line.

1-month view

The rupee moved to the upper boundary of our medium term range to form a short-term peak at 41.7. This level is very important from a medium-term perspective since it occurs at 38.2 per cent retracement of the decline from the January peak. Failure to penetrate this level would signify that the medium term downtrend from January peak would resume to take the Indian currency below 44.

Conversely, appreciation beyond 41.7 will set the next target for the currency at 41.1. Our medium term view for the currency stays bearish as long as it remains below 41.1.

5-day view

The Indian currency is in a short-term downtrend since the trough recorded at 41.7. There is a strong short-term support in the band between 42.8 and 43 from where the rupee is currently pulling back. This level needs to be penetrated before the currency can have another shy at 43.5.

Resistances are at 42.1 and then 41.7. Failure to appreciate beyond the first resistance would be a sign of weakness.

Supports – 42.8, 43, 43.5

Resistances – 41.7, 41.6, 41.2

Lokeshwarri S. K.

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