The ongoing crisis reached a crescendo towards last weekend as Federal Reserve's Operation Twist and fears of slowing growth in China and Europe sent another wave of alarm through financial markets. Investors fled most assets including equity and commodities to plough it in to the most liquid safe-haven, the dollar.

Rupee threatened to move below the psychological 50 mark but RBI intervention is purported to have helped to stem the decline. Foreign institutional investors have withdrawn $937 million from equity and debt over the last five sessions adding to the nervousness. But interestingly, FIIs have been net buyers in Indian equity to the tune of $185 million in 2011. They have also net bought $3.9 billion in debt.

The sharp depreciation in rupee despite insubstantial FII outflows is partly explained by demand for dollars from corporates to repay foreign borrowing, says a recent Crisil Research's report. “The repayment of India's overall short- term debt, at $88 billion in 2011-12, is 25 per cent higher as compared to 2010-11 .This has raised the demand for US dollars. Corporate debt repayment may continue to exert downward pressure on the rupee through the rest of the fiscal as Indian companies pay back their foreign debt.”

Dollar-rupee outlook: Rupee moved below the critical support at 49.1 indicated last week to record the low of 49.89 on Friday. But the currency could not sustain at that level and is once again above the 49 mark.

Since this (49.1) is a long-term support, we need strong close below to indicate a breach and a possible decline to the previous all-time low at 52.1. The currency could appreciate towards 47.6 or 46.1 in the weeks ahead. The current pall of gloom will however get lighter only once the currency moves above 47.6.

Conversely, inability to surpass this level will mean that the weakness will linger with the possibility of another shy at the 50 mark.

USD-INR futures: Moved far beyond our short-term target to the high of 49.9. But a short-term correction is currently underway that can pull the contract down to 48.9, 48.6 or 48.3. Traders with short term perspective can hold the contract with stop at 48.85.

If the contract holds above this, it can move higher to 49.9 or 50.2 in the upcoming sessions.

EUR-INR futures: Moved beyond our outermost target to the peak of 67.5 on Friday. The contract has however retracted slightly since then. Short-term supports are at 66, 65.5 and 65.1. The first support can act as the stop-loss for traders. Reversal above this level can pull the contract up to 67.5 or even 68.5 in the weeks ahead.

GBP-INR futures: Moved in line with our expectation to achieve the peak of 76.9 on Monday. Traders can continue to buy in declines as long as the contract trades above 76. Subsequent supports are at 76.7 and 75.5.

JPY-INR futures: These contracts moved close to our medium-term target of 66 when it recorded the peak of 65.5 on September 23. Traders can buy in declines with stop at 65. Breach of this level however will pull the contract to 63.5 or 63.1.

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