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Rupee has been undergoing an intensely volatile phase over the last few sessions. It raced beyond 47 on Friday as low inflation and hopes of another stimulus package buoyed sentiment in the equity and forex markets. But renewed fears of economic slowdown has yanked rupee lower again.

Halt in dollar’s decline also contributed to the reversal in the rupee movement. Dollar index reversed from 78.7 and is strengthening once more. The near-term trend in this index will, however, remain down as long as it remains below 85.

Rupee rallied to the resistance band between 46.7 and 47 indicated last week and recorded a sharp downward reversal from there. Key near-term support band is between 48.7 and 49.1. Presence of the 50-day moving average (DMA) at this level will also lend support in the near term. If this zone is penetrated, there will be a move towards 50.5 again. Conversely, failure to breach this zone will imply that the uptrend from the December 2 trough will have legs that take the currency higher towards 46.

The Indian currency unit reversed downward below the key resistance at 46 indicated last week. This means that the currency is likely to move as per the first medium-term trajectory outlined in our column last week — there can be a sideways correction between 46 and 50 for a few weeks followed by resumption of the down trend. A three wave flat pattern has been completed from the October-27 trough in the currency. This can be followed by yet another three or five-wave pattern that keeps the currency in the afore-mentioned range between 46 and 50. As long as rupee remains below 46, the possibility of a decline to 53 or below, remain open. Close above 46 is required to turn the medium-term view positive.

Supports – 49, 50, 50.5

Resistances – 47.7, 46.7, 46

Lokeshwarri S. K.

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