The Hindu Business Line : Rupee to test 43.5 in near term

There was pandemonium in all the financial markets on Tuesday with the 10-year bond yield rising to 9.47 per cent, the Sensex tumbling by almost 5 per cent and the rupee depreciating sharply above the 43 level as Fitch downgraded India’s domestic rating outlook to negative from stable.

The Indian currency had been relatively stable in the second half of last week as crude prices declined and stock prices moved higher. But with the return of volatility in equities and the crude spiking to $147, the rupee has started moving lower once again.

Meanwhile, the US dollar fell to the lowest level against the Euro and was trading at a 25-year low against the Australian dollar on the resurgence of the fears that the US economy would slip in to a recession following the bail-out plan for Freddie Mac and Fannie Mae announced by the Federal Reserve.

1-month view

Rupee has been moving sideways with a negative bias since the May peak at 43.2. This move appears to be the fourth wave from the peak formed in January at 39.05. The fifth leg of this move could terminate at 43.4 or 44 and a sideways correction between 42 and 44 is then likely to ensue.

Our medium term view for the rupee that it would move in the range between 41.6 and 44 is in alignment with the above count. A decline below 44 would indicate that the currency is heading towards the next medium term target at 44.4

5-day view

The rupee appreciation towards the end of last week halted at the peak at 42.58 on Monday. The reversal from this level is dragging the Indian currency towards its recent trough at 43.5 once more. Regulatory intervention at this level can cause a sideways move between 42.8 and 43.5 for a few more sessions.

But the rupee is likely to move past this level towards 43.74 in the near term. This negative bias will be mitigated only if the currency closes above the short-term trend line at 42.6. Subsequent resistance will be the recent peak at 42.39.

Supports – 43.17, 43.5, 43.74

Resistances – 42.58, 42.39, 42.1

Lokeshwarri S. K.

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