The rupee retained its strength in the past week, in line with expectations.

The currency recorded a low of 67 on Wednesday and reversed higher. It then went on to a high of 66.65 before closing the truncated week at 66.71 on Monday, up 0.48 per cent for the week.

Volatility is guaranteed in the coming week as it is packed with a series of key events. US President Donald Trump speaking to the Congress on Tuesday will be the much-awaited event for the week.

Global markets will be keen to see whether Trump will give details of his action plan.

On the domestic front, third quarter GDP data is due for release today. This will be followed by the Nikkei India Manufacturing Purchasing Managers’ Index numbers on Wednesday.

Dollar index

The dollar index has been hovering around 101 over the last couple of weeks and the outlook remains unclear.

The outcome of Trump’s speech might be a possible trigger that could determine the trend for the dollar index.

Key resistance for the index is between 101.85 and 102. A strong break above 102 is needed for the index to gain fresh momentum. Such a break may ease the downside pressure and take the index higher to 103 or even 103.7 thereafter.

On the other hand, key support for the index is at 100.70. A break below 100.7 can take it to 100.3 or 100 initially.

Further break below 100 may increase the downside pressure and drag it to 99.4.

Rupee outlook

The reversal from 67 in the past week suggests that the rupee lacks bearish momentum to drag it decisively below 67. This keeps the short-term bullish outlook intact.

The rupee is more likely to strengthen to 67.50 or 67.35 in the near term. Further break above 67.35 can take the currency higher to 66.10 and 66 thereafter.

As reiterated in this column over the last few weeks, 66 is a crucial resistance level to watch out in the coming days.

The rupee has been broadly range-bound between 66 and 68.85 for more than a year now. A strong trigger is needed for the rupee to break this prolonged consolidation phase above 66.

But for now there is no sign of such a strong trigger.

So, the currency is more likely to reverse lower again from around 66 levels.

Such a reversal will keep the broad 66-68.85 sideways range intact. In such a scenario, the possibility of the rupee weakening to 68 and 68.5 levels once again over the medium term will increase.

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