Money & Banking

Short-term weakness in rupee

Lokeshwarri S.K. | Updated on January 05, 2011 Published on January 05, 2011

The rupee rallied above the 45 mark against the greenback over the past week on strength in equity market and foreign institutional investors pumping in about Rs 3,600 crore in to equities. But worries over the record current account deficit and strength in dollar pulled the Indian currency lower on Tuesday. Price of crude, that is showing no signs of cooling down, is also exerting downward pressure on the Indian currency.

Strong manufacturing and construction numbers helped dollar arrest its fall and rally higher on Monday. The dollar index that tracks movement of dollar against a basket of currencies declined to the support band between 79 and 79.2 indicated in our previous column. Reversal from here can take the index to 81.5 or 82 in the days ahead.

Dollar-rupee outlook

Rupee rallied to the high of 44.6 in line with our expectation. But the currency could not move above the resistance at that level and declined sharply on Tuesday. Key support for the currency in the near-term would be at 45.2. Penetration of this level would drag the currency further to 45.5.

Medium-term trend in the currency is up since the November 30 trough. Target on a breach of 44.6 remain at 44.2 and 44. The positive short-term view will be negated only on a close below 45.5.

USD-INR futures

USD-INR futures could not record a strong close below the 45 level indicated in our last column but it moved close to our first short-term target at 44.8. Daily charts indicate the formation of a morning star candlestick pattern that is a bullish reversal pattern. The contract can now move higher to 45.4, 45.6 or 45.8 in the days ahead.

Traders can go long with stop at 45. Supports below 44.8 are at 44.6 and 44.4.

EUR-INR futures

EUR-INR futures reversed higher from the support at 58.7 in line with our expectation. Short-term targets for the contract remain at 60.6 and 61.6. Traders can book some profit on failure to move above the first target. Supports in the days ahead would be available at 59.6 and 59.

GBP-INR futures

GBP-INR futures found support at 69.4 and reversed sharply higher on Tuesday. This contract has key medium-term support around 69.4 and traders can hold their long positions as long as the contract trades above this level. Next medium-term support is at 68.3.

Short-term targets for the contract are at 71.3 and 71.9.

JPY-INR futures

JPY-INR futures is facing resistance in the band between 55.1 and 55.6 and fresh long positions are recommended only on a strong close above this band. Subsequent target is 56.3. Supports for the contract would be available at 54.7 and 54.3.

BL Research Bureau

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Published on January 05, 2011
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