The rupee retained its sideways range, continuing to remain volatile within the band. After opening with a gap-up last Thursday (January 12), the currency fell to a low of 68.27 on Monday.

Though the currency recovered from this low to touch a high of 67.89 on the back of a weak dollar, it failed to sustain its strength and shed some of its gains to close at 68.07 on Wednesday.

The dollar index slumped 1.2 per cent on Tuesday after Britain’s Prime Minister Theresa May announced a 12-point Brexit plan. A strong rise in the British pound against the dollar saw the dollar index tumble from around 101.5 to 100.3 on Tuesday. The pound surged over 3 per cent against the dollar from 1.20 to 1.24 following the Prime Minister’s speech.

The dollar index has, however, recovered slightly from its low of 100.3 and is currently trading around 100.7. US President-elect Donald Trump’s recent comment that the dollar is too strong may add pressure on the index in the near term. The immediate view remains unclear for the dollar index. The market would wait for Trump to take office on Friday to get some cue on his actual action plans.

On the charts, the dollar index is currently hovering at 100.68, a crucial support. Inability to bounce back strongly from current levels may keep the index under pressure, for a fall to 100 or 99.7. But if the dollar index manages to bounce back from current levels and sustains above 100.68, a rise to 102 is possible in the coming days.

Rupee outlook

There is no major change in the view on the rupee as it remains in the 67.7-68.35 range for the fifth consecutive week. Inability to break above the psychological 68 level for more than a week keeps the bias bearish within this sideways range. Also, the series of key resistances between 67.90 and 67.70 reduces the probability of the rupee breaking above 67.7.

Key resistance is in the 68.35-68.40 zone. A strong break below 68.4 can take the rupee lower to 68.7 and 68.85 in the short term. As reiterated in this column, the region between 68.80 and 68.85 is a crucial support zone.

A decisive weekly close below 68.85 will keep the medium-term bearish view intact. Such a break can see the rupee weakening to 69 initially. Further fall below 69 will see the currency tumbling to 69.6 and 70.25 over the medium term.

The rupee will need a strong break above 67.7 to turn the short-term view positive. This, though unlikely, may take the rupee higher to 67.50 and 67.30 in the short term.

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