Money & Banking

Turbulence in forex market

Lokeshwarri S. K. | Updated on May 10, 2011 Published on May 10, 2011

It was another turbulent period in the foreign exchange market last week and the rupee declined sharply against the dollar to move close to the 45 mark. Weakness in domestic equity prices and a strong dollar applied downward pressure on the Indian currency. According to BSE, foreign institutional investors pulled out close to Rs 4,000 crore from the secondary market last week.

Pandemonium ruled in the global forex market with the credit crisis in Greece yanking the euro down against the dollar. The relative strength in dollar has, in turn, sent commodity prices crashing. The dollar index spiked higher to 75 on Monday. We stay with the view that the short-term outlook will turn positive only on close above 76.

Dollar-Rupee outlook

The rupee moved to the low of 44.9 indicated in this column last week and moved sideways thereafter. The currency has short-term support around 44.8 and if it manages to hold above this level, it can move between 44 and 44.8 for few more weeks.

On the other hand, move below 44.8 can take the currency to 45 or 45.6 against the dollar. The long- and medium-term trends in the currency are however up. A strong weekly close below 46.3 is the first step towards threatening the medium-term view. The long-term trend deciding level is 47.

USD-INR futures

USD-INR futures moved above 44.9 to achieve the first target at 45.1. The contract is currently in a short-term correction that can halt at 44.77 or 44.6. Short-term traders can hold their long positions with stop at 44.75. If the contract continues to moves above this level, it can move on to 45.3 or 45.6 in the sessions ahead.

EUR-INR futures

EUR-INR futures did move higher over the past week in line with our expectation but it reversed lower from the peak of 67 to decline to 64. Key short-term support for the contract is at 63.8. Fresh short positions are advised only on a close below this level with the targets of 62.8.

A rebound from current level can take the contract higher to 65.2 or 65.8 in the upcoming sessions.

GBP-INR futures

GBP-INR futures have also moved close to their short-term support at 73.4. A reversal from these levels can take the contract to 73.8 or 74 in the short-term. Fresh shorts can be initiated on failure to move above the first resistance. Supports on decline below 73.3 are at 73 and 72.7.

JPY-INR futures

JPY-INR futures recorded the peak of 56.4 on May 5 and turned very volatile after that. It is currently in a short-term correction that can halt around 55 or 54.6. If the current rebound sustains, the currency pair can move to the resistance zone between 56.3 and 56.4 again.

Published on May 10, 2011
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