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The rupee continued to track stock price movement and reversed higher from the low of 45.4 recorded on May 25. The Sensex reversing higher after registering a low of 18,000 and FIIs turning net buyers in the secondary market helped to buoy sentiments in the currency. Three-month rupee forwards on the NDF market were trading at 45.7 denoting a weak outlook.
Risk-aversion ebbed in global markets on hopes that other nations would help make Greece tide over the present crisis. The euro strengthened sending the dollar lower. The dollar was further impacted by worries on the US economy front. The dollar index traded on Inter-Continental Exchange reversed down from 76.5. We stay with the view that a strong close above 76.5 is required to signal that the index is on its way to sustainable recovery.
Dollar-Rupee outlook
The rupee breached the support at 45.2 to record the trough at 45.4, but the currency did not make any headway from those levels. We will now have to label the entire zone between 45.2 and 45.4 as key support zone for the currency. If the currency does not move below this zone it will result in the currency strengthening towards 44.8 or 44.5 in the weeks ahead. Immediate resistance for the currency is at 44.97 and then 44.87. If the currency remains below these levels, it will imply that a sideways movement between 45 and 45.4 is possible for few more sessions. Resistances above 44.8 are 44.7 and 44.5.
The currency is stuck between 44 and 47 over the medium-term. Since this sideways move follows the rally from 52.1 to 44, the long-term trend continues to be up and the rupee could strengthen beyond 44 in this period. Sharp close below 47 is required to mitigate this view.
USD-INR futures
USD-INR futures struggled to move above 45.5 in line with our expectation and moved in a narrow range between 45.2 and 45.45 instead. We stay with the view that fresh long positions should be initiated only on a close above 45.5. Subsequent targets remain at 45.7 and 45.9. The sideways move witnessed over the last few days however has bullish connotations and traders with greater penchant for risk can initiate fresh longs at current level with stop at 45.1. Subsequent supports are at 44.94 and 44.8.
EUR-INR futures
EUR-INR futures reversed from the low of 63.3 to rally higher in tandem with the uptrend in the euro. Immediate resistance for the contract is at 65.4. Traders can book profits if the contract reverses lower from this level. Target above 65.4 is 66.7.
GBP-INR futures
The support at 72.8 cushioned GBP-INR futures and it reversed higher to achieve our second target at 74.5. The contract faces strong resistance between 74 and 74.5. It has reversed lower from here in August 2010 and again in February this year. Next target for the contract if the rally sustains is at 75.7. Traders can hold the contract with stop at 73.85.
JPY-INR futures
JPY-INR futures vacillated between 55.2 and 56 over the past week. It is best to avoid this counter as long as the trend remains indeterminate.
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