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Major upheaval was witnessed in the foreign exchange markets on Monday as dollar declined sharply against major currencies. Group of 20 nations abstaining from making any move to aid the declining dollar in its weekend meeting, coupled with the International Monetary Fund’s observation that the greenback is now “the funding currency for carry trades”, made the dollar index decline to a fresh 2009 low of 75.02. Move below 75 will result in this index headi ng towards 74.6 or 71.9.

Weakness in dollar, coupled with pull-back in equity market, made the rupee appreciate almost 1 per cent to 46.3 on Monday. Crude oil prices rising close to $80 a barrel tempered these gains as oil importers bought dollar to fund purchases.

The down-move that commenced from the October 15 peak has halted at the low of 47.6 and the rupee is once more strengthening. As indicated earlier, the currency has strong support at 48 and then at 48.5. Reversal above these supports can result in the currency moving sideways in the band between Rs 45.5 and Rs 48 for a few more weeks.

If the rupee strengthens above 45.5, the next target is at 44. The long-term outlook for the rupee will turn positive only on a close above 44 since this level occurs at 61.8 per cent retracement of the down-move from January 2008 peak of 39.

Short-term trend in the rupee is up since October 29. But this up-move can halt abruptly above or around 45.7 and there can be another decline to 47.4 or even 48.1. Key supports for the week ahead are at 46.8 and 47.1. If the Indian currency is unable to penetrate these levels, it will imply strength and an impending move towards the recent peak of 45.8.

Supports – 46.8, 47.1, 47.4

Resistances – 46.3, 45.7, 45.5

Lokeshwarri S.K.

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