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The rupee continues to remain weak against the US dollar.
The currency made some wild swings in the initial part of the week. It tumbled to a low of 65.10 by Thursday and reversed from there to make a high of 64.62 on Monday but failed to retain its strength. The currency had turned weaker again and has closed at 64.88 on Tuesday, down 1 per cent for the week.
Strong US dollar capped the strength in the rupee and retained the pressure on the domestic currency.
The dollar index surged over a per cent last week, breaking above 90 and made a high of 90.20.
The index has however come off from this high and is currently trading at 89.78.
Strong dollar
The outlook for the US dollar index is positive.
The price action on the daily charts since mid-January reflects the formation of a double-bottom pattern. This is a bullish reversal pattern.
The neck-line resistance of this pattern is at 90.5, which is likely to be tested in the near-term.
A strong break above this hurdle can bring fresh strength to the index. It will then increase the likelihood of the dollar index surging towards 91.8 or even 92.20 thereafter.
Such a rally in the dollar index will increase the pressure on the rupee and drag it below 65 towards 65.5 or even 66 thereafter.
Rupee outlook
The outlook for the rupee continues to remain negative. Though the currency can remain range-bound between 64.5 and 65 for some time, overall strength is expected to be limited. A cluster of resistances in the broad 64-64.5 region can cap the upside in the short term.
A strong break and decisive close below 65 will bring renewed pressure on the rupee. Such a break can take the rupee lower to 65.2 initially. A break below 65.2 will increase the likelihood of the currency falling further towards 65.5. Such a fall will also increase the possibility of the rupee revisiting 66 levels over the medium term.
The outlook for the rupee will turn bullish only if it breaks above 64 which looks unlikely at the moment.
The BSE and National Stock Exchange have launched derivatives trading in major currency pairs starting from Tuesday. Both futures and options contracts have been introduced in three major currency pairs – EUR-USD, GBP-USD and USD-JPY. Interestingly, these three currency pairs have an extended trading time up to 7:30 pm compared with 5 pm closing time for the rupee derivatives (USD-INR, EUR-INR, GBP-INR and JPY-INR).
The volume data from the NSE show that the futures segment in these new currency pairs are gaining traction. Volumes in the EUR-USD pair was the highest among the three, followed by the GBP-USD and USD-JPY pairs. However, trading in the options segment was almost nil.
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