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Foreign exchange markets were in a state of turmoil over the past week as the list of countries slipping into recession kept growing longer.

Heightened risk-aversion led to unwinding of positions in equity and commodity markets across the globe to repatriate money to home countries. This led to strength in currencies such as the yen and the dollar. The Yen strengthened to 95 against the dollar and the dollar index, that tracks the dollar’s move against a basket of currencies, rose to a 30-month high at 88. The next target for this index is 92.5.

The rupee too plunged towards the 50 mark as declining equity markets rekindled fears of an exodus of funds invested in the Indian stock market. The weakness of the rupee in the non-deliverable forward market continued. The 3-month forwards were trading at 51.6 on Tuesday.

The currency remained within the medium term range between 46.4 and 50.5 that we had indicated in our previous columns. The move from the recent peak at 46.7 could be the second leg of the corrective sideways move that is on since October 27. As per this assumption, the decline should halt again around 50.5 and there can be sharp appreciation towards 46.5 again.

If the lower boundary at 50.5 is breached, the decline can extend to take the rupee towards 53 over the medium-term. But there is a strong long-term support for the rupee in the zone between 51 and 53 and a significant trough is possible in this area.

The rupee needs to appreciate beyond 46.4 to make the medium term view positive.

The support at 50 is under threat again; the rupee closed just a whisker short of this mark on Tuesday. The short-term downtrend from the peak at 46.7 is gaining momentum. Oscillators in the daily chart signal that rupee can decline further in the near term. There will be a strong support in the area between 50 and 50.5 where it formed the recent trough. But a move towards 51.5 is likely once it moves below 50.5.

Resistances would be available at 47.9 and then 46.7. Move above 47.9 will mitigate the short-term bearishness.

Supports – 50.2, 50.4, 51.5

Resistances – 48.6, 47.9, 46.7

Lokeshwarri S. K.

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