Rupee took a dive below the 57 mark on June 22 to record a new low at 57.33. The Reserve bank of India announced a slew of measures including increasing the limit that foreign institutional investors could invest in government securities by $5 billion, increasing the ECB limit by $10 billion and rationalizing FII investments in infrastructure funds and facilitating QFI investment in mutual funds with investments in the infrastructure sector.

The forex market however appeared unfazed by these measures and the Indian currency continued trading below the 57 mark on month end demand from oil importers. The 3-month rupee forwards on Non Deliverable Forwards market is trading at 58.2 implying a bearish bias in the currency.

Purchase of new homes in US rose to the highest level since April 2010, buoying the dollar index. This index has once again moved up to 82.6. Supports for this index are at 81 and 80.5. It needs a close below the second support to signal a reversal in short-term trend.

Dollar rupee outlook

Rupee achieved our target of 57.1 last week. But it is not displaying any sign of reversing higher. It is instead moving sideways between 56.3 and 57.3 over the last three sessions. This movement in the lower range is bearish for the near-term. There is the possibility of further decline to 57.6 or 58.5 in the sessions ahead.

The currency needs to record a strong move above 56 to signal the possibility of the near-term trend reversing higher. Subsequent targets are 55.3 and 54.9.

The medium-term trend in the currency stays down. We retain the target of 59.1 if the currency goes on to close below 57.5.

USD-INR futures

This contract moved past our short-term target of 56.7 to record the recent peak of 57.4. Short-term supports for the contract would be at 56.3 and 56.1. Short-term traders can hold their long positions as long as it trades above 56.1.

Short-term targets for the contract are 57.5 and 58.4.

(This article was published on June 26, 2012)
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