The Hindu Business Line : Rupee to decline further

Upward revision of the targeted fiscal deficit in the Union Budget acted in concert with the crash in equity market to cause a sharp depreciation in rupee this week. The currency reversed lower from the short-term peak of 47.5 to decline to 48.9 against the dollar by Wednesday.

1-month rupee forwards were trading at 49 and 3-month forwards were trading at 49.4 on the Non-Deliverable Forward (NDF) market indicating a downward bias in the rupee movement.

Dollar strengthened against other major currencies as equities world-wide moved lower ahead of the second quarter earnings announcements. Dollar index traded on Intercontinental Exchange has moved above 80. We maintain that the next resistance zone for this index is between 82 and 82.5.

One-month view

We had indicated in this column last week that the short-term rally in the last week of June was a temporary pull-back that can be followed by a decline to 49 or 50 again. Rupee followed our script quite closely. We have also reiterated the importance of the long-term resistance in the band between 46.5 and 47.5 in our previous columns. Rupee would find it hard to get past this resistance zone over the medium term and a downward reversal from here can take the currency towards 50 or 52 again.

A medium term decline is in force since the June 2 peak of 46.5. Immediate targets for this move are 49.9 and 51.2. A close above 47.5 is needed to mitigate the negative medium-term view.

Five-day view

Short-term trend in rupee is down. It is currently holding above the support at 49. Decline below this support will take rupee to 49.4 and 50.

Short-term resistances would be at 48.2 and 47.7. The short-term view will stay negative as long as the currency holds below the first resistance.

Supports – 49.4, 49.9, 50.2

Resistances – 48.2, 47.7, 47.5

Lokeshwarri S.K.

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