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The rupee recorded a low of 53.9 against the dollar on Friday on weakness in equity market and concern over the growing current account deficit.
The currency reversed from that level as the RBI intervened by announcing measures such as increasing the interest rate on FCNR (B) (foreign currency non-resident bank) deposits and allowing banks to determine the interest rates on export credit in foreign currency.
Further, the announcement by the Finance Minister that implementation of GAAR will be pushed to fiscal 2013-14 also buoyed financial markets taking the rupee higher towards 52.7.
But the strength was short-lived as selling pressure returned in the equity market on Tuesday on concerns that measures announced were not sufficient to give a fillip to inflows. Greece' New Democracy leader saying that he is unable to form a coalition brought back turbulence in the global financial markets. The euro weakened to 1.3 against the dollar.
The dollar index jumped to 80 on a weak a euro despite slowing jobs data. Immediate resistances are at 80.4 and 81.8. These levels need to be cleared for the short-term trend to turn positive.
Dollar-rupee outlook
The rupee reversed lower from the intraday peak of 52.7 recorded on Tuesday.
The shallow pull-back implies that the wave that began from February 6 peak of 48.6 is not yet complete.
Immediate hurdles for the rupee are at 52.67 and 52.3. If the rupee is unable to move above these levels, it will imply that the near-term outlook remains negative. The currency would then be expected to decline further to 54.3 or 55.4 in the upcoming weeks.
There could however be a sideways move between 52.3 and 54 for few weeks before the rupee makes one more move towards the 55 mark.
Rally above 52.3 is needed to make the short-term view positive. Medium-term view will turn positive only on firm close above 51.9.
USD-INR futures
This contract recorded a high of 54.17 on Friday before reversing lower. Immediate support for the contract is at 52.9.
Traders can hold their long positions with stop at 52.85. Some profits can be booked as it nears the previous peak at 54.5.
Target on a break above this level is 55.1.
Supports below 52.9 are at 52.5 and 51.6.
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