The Hindu Business Line : Rupee to remain range-bound

The rupee displayed strength over the past sessions. Soaring WPI numbers leading to the expectation that the Reserve Bank of India would allow the currency to appreciate from current levels as one of the measures to combat inflation ensured a steady demand for the currency.

Net inflows from foreign institutional investors too contributed towards the rupee’s strength.

The dollar strengthened on Monday on the back of G7 Finance Ministers expressing concern on the volatility in the foreign exchange market. But a quarterly loss reported by Wachovia and fears of further writedown from Citigroup and Merrill Lynch have pegged back the currency once more.

1-month view

Our one-month view for the USD-INR currency pair is unaltered. The current range-bound move can be labelled as the B wave of the downtrend that commenced at Rs 40.83 on March 17. Though this sideways move can extend for a few more weeks, the next leg down (C wave) can pull the pair lower. The minimum target for the C wave down is Rs 39.33. Close beyond Rs 40.1 will mitigate the bearish bias over the medium term.

5-day view

The currency pair was confined within a very tight range over the past week between Rs 39.7 and Rs 40.06, in line with our expectation.

There are early signs of fatigue in the oscillators in the daily chart. The 10-day rate of change oscillator has reversed just below the zero line. The fact that the pair is unable to hold on to the intra day peaks is also a negative sign.

USD-INR pair can continue to move in the island formed by the 50 and 200 day moving averages (between Rs 39.72 and Rs 39.96) for a few more sessions. Turbulence induced by the upcoming Monetary Policy on April 29 can make the currency pair re-test the March 31 trough at Rs 39.6. The resistance band between Rs 40.05 and Rs 40.1 will be a formidable short-term barrier in the near term.

Supports – 39.84, 39.75, 39.60

Resistance – 40.0, 40.05, 40.1

Lokeshwarri S.K.

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