The Hindu Business Line : Short-term consolidation in rupee

The rupee had been steadily appreciating since 2002 and it was widely believed in the first few months of 2008 that the dollar rupee rate could even rise up to 36. But the Indian currency unit has outdone the most pessimistic forecast by declining a whopping 22 per cent in this calendar.

While soaring crude price played the miscreant in the first half of the year, FII outflows and strengthening dollar contributed to the rupee decline in the second half. Escalating geo-political tension in the West Asia and the resulting spike in crude prices had roiled the rupee outlook in the near-term as importers bought dollars to stock up crude.

Five-day view

The short-term trend in the rupee is down since the December 19 peak. It is currently receiving support from the 50-day moving average and the Fibonacci retracement support at 49. The currency is likely to penetrate this support and head lower to 49.2 and then 50.2 in the short-term.

Inability to penetrate this support can result in the currency fluctuating in the band between 47.5 and 49 for a few more sessions. Close above 47.5 will take the currency to the recent peak at 46.4.

One-month view

The medium term trend in the rupee is sideways. It has been confined between 46.5 and 50.5 over the last three months. The next long-term move in the currency can be determined only on a break-out from this range.

The long-term trend in the currency is down since this January and the current sideways move can be construed as a consolidation before the downtrend resumes.

However, the presence of long-term support at 49, where the currency bottomed in May 2002, can cause a long-term reversal that makes the rupee appreciate towards 45 or 43 again.

Supports – 49.2, 50.2, 50.6

Resistances – 48, 47.7, 46.9

Lokeshwarri S. K.

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