The Hindu Business Line : Strong support at 44 for rupee

Demand for dollar from importers coupled with renewed strength in the dollar made the rupee decline below the psychological 44 mark on Tuesday. A wobbly equity markets and continued sales by foreign institutional investors aided the decline. FIIs have pulled out more than $7 billion from Indian equities in 2008.

Weakness in other major currencies such as the pound, Australian and New Zealand dollar and speculation about an interest rate cut by the European Central Bank aided in arresting the mild dollar decline over the last five sessions. The US dollar index on the Intercontinental Exchange (ICE) recovered from a recent trough at 76.1. The shallow correction implies that the currency can resume its upward move after a brief period of consolidation. Near term resistance for the index is at 77.8.

1-month view

With the decline to 44.14 on Tuesday, the rupee has retraced half the gains recorded from May 2002 during which the currency appreciated from 49 to 39. As explained in our last column, next long term support as per Fibonacci retracement levels is at 45.26.

However, the strong support in the zone between 44 and 44.5 might not be penetrated just yet. An upward reversal from this zone would result in the rupee moving between 42 and 44.5 for a few months. The currency needs to close above 41.7 to mitigate the negative medium term view.

Conversely, a sharp move below 44.5 would indicate that the currency could spiral lower towards 45.2 or 46.2 with breath-taking speed.

5-day view

Following a mild correction lasting just two sessions, the downtrend resumed from Monday’s trough at 43.1. The currency continues to receive strong support at 44. It can attempt to reverse from 44 or 44.5. If there is a move below 44.5, then the subsequent support would be at 45.3.

Resistances in the ensuing sessions be encountered at 43.06 and then at the long-term moving averages present between 42.6 and 42.8. The near term view will turn positive only on a close above the second resistance.

Supports – 44, 44.4, 44.5

Resistances – 43.4, 43, 42.6

Lokeshwarri S. K.