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Indian financial markets underwent a torrid period in the last week of January and first week of February. Stock prices hurtled lower and net sales by FIIs too accelerated. External investors pulled out close to Rs 4,300 crore in this period making rupee move down to the 46-mark against the dollar. The decline was however stemmed by demand for dollars from importers. FIIs turning net buyers also helped sentiment in the rupee.
The greenback that had been weakening against the euro through January on expectation that the ECB would hike rates reversed higher last week. Resistances for the dollar index are at 78.8 and 79.8. Failure to move above the first resistance will pull the index down to the November low at 75.2 in the weeks ahead.
Dollar-Rupee outlook
Rupee could not move below the support at 46.3 and reversed higher to 45.2 in line with our expectation. The long as well as the medium-term trend in the currency are up. Failure to move below 46.3 reiterates medium-term strength in this currency pair. We maintain the medium-term range between 44 and 46.3 for the rupee.
Long-term view for the currency will turn negative only on a close below 47.1. The rally from January 31 trough will face resistance at 45.1. Close above this level will take the currency to 44.6. Short-term supports are at 45.5 and then 45.7.
USD-INR futures
USD-INR futures moved close to our second target to record the high of 46.23 on January 31 before reversing lower. The contract has strong support at 45.37 that was the low formed on Tuesday. Fresh shorts are suggested only on a close below this level. Subsequent targets are 45.1 and 44.8.
Conversely reversal from current levels will take the contract higher to 45.7 or 45.9 in the days ahead.
EUR-INR futures
EUR-INR futures moved slightly beyond our target of 63.2 to record the peak of 63.4 on February 2. The contract could however not make any headway from those levels and reversed lower to the low of 61.7. The contract has strong support in the zone between 61.6 and 61.7 and fresh short positions are suggested only on a close below 61.6. Next target is 61.
Traders with a greater penchant for risk can buy the contract with stop at 61.5. Short-term targets are 62.4 and 62.8.
GBP-INR futures
GBP-INR futures too followed our script and did not violate the support at 72.1. It instead rallied to the peak of 74.5 by February 3. Failure to clear the resistance around 74.5 implies that the contract can now decline to 72.5 or 71.3 over the short-term. Decline below the second support will establish the band between 69.5 and 74.5 for the medium-term. Short-term resistances for the contract would be at 74 and 74.5.
JPY-INR futures
JPY-INR futures moved beyond our short-term target at 56.3 to record the peak of 56.8 on February 1. Immediate support for the contract is at 54.8. Fresh short positions are advised only on a close below this level with subsequent targets at 54.3 and 53.6. Resistances for the days ahead would be at 55.7 and 56.3.
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