The Hindu Business Line : Rupee faces resistance at 47

There was another bevy of policy rate cuts and easing of reserve requirements by central banks across the globe last week to stabilise financial markets. Equities finally deigned to take note of these frantic efforts and a smart rally ensued that took the Indian benchmark, Sensex, up 40 per cent from the trough formed on October 27. Strength in stock prices buoyed currency markets and the rupee strengthened sharply above 47.

Net cash inflows of close to $500 million in November from foreign institutional investors too aided in assuaging the sentiment. Dollar index traded on Intercontinental Exchange strengthened after the completion of the US Presidential elections. This index could move between 84 and 88 for a few more sessions. Close below 84 would signal that the US dollar could resume its downward trajectory over the medium term.

One-month view

But it is a little early to judge if the down-move that commenced in January this year has ended or if this is just a temporary pull back in the down-trend. The movement over the next two weeks should help us decide the medium as well as the long-term trend in the currency.

The currency faces strong medium term resistance between 47 and 46.4. A downward reversal from this band will result in the currency moving within a band within 46.4 and 50.5 for a few weeks. The medium term view will stay bearish as long as the currency stays below 46.4.

If there is an appreciation beyond 46.4, it would mean that the third leg of the long-term corrective move that commenced in May 2002 is in progress. The inference would be that the currency could appreciate all the way to 45 or even beyond.

Five-day view

The seven per cent appreciation from the 50.27 trough has averted a decline to 53.3 in the near term. Since the currency bounced off an important resistance at 47 on Wednesday, it can now decline towards 48 or 48.9. The near term trend will stay neutral as long as the currency remains above 48.9. Move below this level will hasten the decline to 50.

As explained above immediate resistance would be in the band between 47 and 46.4. If this level is breached, the next target would be 46.1.

Supports – 48, 48.5, 48.9

Resistances – 47, 46.4, 46.1

Lokeshwarri S.K.

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