The rupee was shackled within a narrow band as weakness in dollar and soaring crude prices prevented the Indian currency from progressing in either direction. Strong rally in the equity market and net FII inflow of over Rs 1,100 crore supported the rupee last week and prevented it from sliding lower despite Brent crude prices rising above $118 a barrel.

Dollar continued to move lower as higher commodity prices fuelled fears of other central banks hiking rates and making other currencies relatively more attractive. Dollar index traded on the Intercontinental Exchange moved to the low of 76.1. We stay with the view that this index can move down to the November low of 75.7 over the ensuing weeks as the greenback continues to weaken.

Dollar-Rupee outlook

Rupee spot moved sideways between 44.9 and 45.2 over the past week. This move has not altered the short-term view. The currency will face resistance around 45, and that is also a psychological hindrance. Strong close above this level will take the currency to 44.8 or 44.6 in the weeks ahead.

It is however hard to envisage a move above 44.6 just yet and the currency can move between 44.6 and 46.3 over the medium-term. The view for the next few months will remain positive as long as the currency trades above 46.3.

It needs to be borne in mind that the long-term trend is up since the March 2009 trough of 52.2. Continued movement of the currency in the band between 44 and 47 over the ensuing months will indicate a propensity to appreciate above 44.

USD-INR futures

USD-INR futures recorded the low of 45 and moved sideways thereafter. The area between 44.8 and 45 continues to be a strong medium-term support zone and traders should stay wary with shorts as long as the contract hovers in this zone. The short-term trend is however down and traders can hold their short positions with stop at 45.5.

Targets on a move below 45 are 44.9 and 44.84. If the decline continues, rupee can decline to 44.6.

EUR-INR futures

EUR-INR futures moved contrary to our expectation and rallied to the peak of 63.4 on Monday. But the contract faces strong resistance around this level and fresh long positions are recommended only on a close above this mark.

Downward targets are 62.8, 62.6 and 62.4. Resistances will be at 63.2 and 63.4. Traders can play short with stop at 63.2.

GBP-INR futures

GBP-INR futures has been moving in a range between 72.9 and 73.9 over the last three weeks. The contract faces medium-term resistance at 74.4 and since it is moving down from this resistance from the February 3 peak, it can move down to 72.8 or 72.5 over the short-term. Stop-loss for trading shorts can be at 74.

JPY-INR futures

JPY-INR futures is moving in a range between 53.2 and 56.2 since last September. The contract will face resistance at 56.3 while the support will be available at 54.2 and 53.7.

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