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Buoyancy generated by change of guard at the Finance Ministry and resumption in foreign portfolio flows could only take the rupee up to 54.17. Sentiment in global forex market turned negative after the Chinese Central Bank and the European Central Bank cut policy rates last week and the Bank of England resorted to monetary easing; sending fears of slower global recovery through financial market.
Concerns about Spain resurfaced too with Spanish bond yields rising above 7 per cent. Slowing import growth in China and weak jobs data out of US have also impeded the rupee’s progress over the past week. This is despite very strong foreign portfolio flows this month. FIIs have net purchased more than $1.1 billion so far in July. The rupee declined to 56 on Monday but recovered slightly in the next session.
Resurging risk aversion made the dollar index rise higher to 83.4 on Monday. This index faces key long-term resistance at 83.5. Strong close above this level can take the index to 88.7 over the coming weeks.
Rupee outlook
The rupee made a significant trough at 57.3 on June 22 against the dollar. The rally from this level however halted just below the key resistance at 54. This resistance occurs at 38.2 per cent retracement of the down-move from 48.6 peak. If rallies halt below this level, it would mean that the medium-term trend continues to be down. The rupee could fluctuate for few more weeks in the band between 54 and 57.4. The risk of a break below 57.3 remains open in such a scenario. Target on a firm close below 57.3 would be 59.6. Medium-term trend will turn positive only on a strong close above 54. Subsequent resistances will be at 52.9 and 51.9. Short-term support for the currency is at 56.1. Close below this level will pull the rupee back towards 57.3. Short-term resistance for the rupee would be at 54.
USD-INR futures: This contract faces short-term resistance at 56.2. Reversal from this level implies that it can now move lower to 54.4 or 53.4.
Short-term view will turn positive on close above 56.2. Next resistance for the contract is at 57.3.
EUR-INR futures: This contract is also declining since the peak of 71.8 recorded on June 22. Key medium-term support for the contract is at 68.7. This level was breached on Tuesday. The contract can now decline to 67.8 or 67 over the medium-term.
Resistances for the contract are at 69.6, 70 and 70.4.
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