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It has been a tumultuous period for all financial markets and the forex market was no different.

Measures announced by the central bank last Tuesday halted the rupee decline at 46.98. The violent rally in the stock markets in the second half of last week coupled with net FII inflows then aided the rupee to appreciate towards 45.2. Downward pressure has, however, returned this week with the return of uncertainty in equity markets and with crude oil zooming close to $110.

The dollar has been weakening over the past week. The US dollar index, traded on ICE, declined to 76.1 on Monday as the currency markets gave a thumbs-down to the gargantuan $700-billion package announced by the Federal Reserve to buy toxic assets held by financial companies.

The key medium term support for the index is at 75. If it declines below this level, it would have to be assumed that the dollar rally over the last two months was a temporary pull-back and it has resumed its long-term downtrend since 2001.

As explained earlier in this column, the rupee is currently charting the second leg of its long-term correction that is on since the May 2002-peak at 49.07. It is too early to pronounce that this second leg that began from 39.02 peak in January has ended. The key medium-term resistance level is at 44.8. We will retain a negative medium term view as long as the rupee stays below this level.

The rupee can, however, spend some time moving sideways in the band between 44.8 and 47 before resuming its down-move towards the 2002 trough. Key medium term support is at 47. If this level is breached emphatically, the decline will accelerate towards the 49 mark.

Rupee has formed a short-term peak at 45.2 on Monday. It can decline towards 46.3 in the near term. If this level is penetrated, the next short term target would be at 47.2.

A rebound from the 46 – 46.5 zone will take the rupee higher towards 45.2 again.

Supports – 46.3, 47, 47.2

Resistances – 45.5, 45.2 44.8

Lokeshwarri S. K.

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