The rupee rallied to 44.9 against the dollar as equity markets stabilised and foreign institutional investors ploughed in some funds into equity markets.

But panic returned to financial markets on Monday with the political unrest in Libya sending Nymex crude futures shooting higher towards $94 causing another sell-off in equity markets.

The rupee too recorded a sharp sell-off to move below 45.2 again. One-month forward on the non-deliverable forward (NDF) market is trading at 45.6 implying a bearish sentiment overseas.

Dollar index that captures the movement of dollar against a basket of currencies could not move beyond the resistance at 79 and declined to the low of 77.5. But it spiked higher on Tuesday as geopolitical turmoil increases dollar's lure as a safe haven.

Medium-term trajectory for this index will be obvious only on a close beyond this range.

Dollar-Rupee outlook

The rupee attained our short-term target of 45 on Monday but it could not sustain there for long. The zone around 45 is also a medium-term resistance since it occurs at 50 per cent (Fibonacci) retracement of the decline from October peak of 43.9. Next medium-term resistance is at 44.7. Close above this level is required to pave the way for a rally to 44.

However, we expect the rupee to struggle to close above 44.7 just yet and spend some more weeks in the band between 44.7 and 46.3.

The short-term trend in the currency is currently down and it can move to 45.4 or 45.6 in the days ahead. If the currency holds above the first support, it can move between 45 and 45.4 for few more days.

USD-INR futures

USD-INR futures declined to a low of 45.03 on Monday before reversing higher. Short-term targets for the contract are 45.5 and 45.8. Strong close above the second target can take the contract back to 46.2.

The contract has strong support in the band between 44.8 and 44.9. Traders can, therefore, buy in declines as long as the contract trades above 44.8.

EUR-INR futures

EUR-INR futures was confined in an extremely narrow trading range between 61.3 and 62 over the past week. Fresh long positions are recommended only on a close above 61.95 with the targets of 62.1 and 62.6.

However, breach of the lower boundary at 61.3 will usher in a decline to 61 or even 60.4 in the days ahead.

GBP-INR futures

GBP-INR futures was also range-bound over the past week between 72.9 and 73.5.

The short-term trend stays down in this contract and targets on a decline below 72.9 remain at 72.6, 72 and 71.4. Short-term resistances would be encountered at 73.9 and 74.5.

JPY-INR futures

JPY-INR futures declined to the trough at 54 on Tuesday before etching a reversal. Immediate resistances for this reversal are at 55 and 55.7.

Inability to move beyond the first resistance will mean that the contract can decline to 54 or even 53.6 in the days ahead.

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