ECB move buoys euro; rupee faces headwinds

Over the last fortnight, the rupee held its own against the US dollar, gaining 0.6 per cent to close at 55.35. But it lost 1.29 per cent against the euro and currently trades at 70.74.

The euro gained strongly in the global currency markets too, thanks to the announcement by the European Central Bank of an unlimited bond purchase programme to ease the stress of debt-ridden Euro Zone nations.

Against the US dollar, the euro gained around 1.76 per cent over the last two weeks and currently yields 1.2786 dollars a piece.

The dollar’s weakness was accentuated by expectations that the US Fed will soon resort to another round of financial stimulus (QE-3), an option it kept open in the Jackson Hole symposium last month.

Closer home, the rupee benefited from the recommendations of the Shome Committee to postpone implementation of the proposed anti-tax avoidance measures (GAAR) by three years.

A better-than-expected economic growth (GDP grew 5.5 per cent in the first quarter) also aided sentiment.

But concerns remain with crude oil prices still ruling high (Brent trades at $114 a barrel) and policy-making in hold-mode due to the coal allocation ruckus.

The latest inflation and industrial production numbers to be announced this week will have a bearing on the rupee’s movements.

Technical outlook

Dollar rupee : The rupee is moving in a sideways range between 55 and 56 against the dollar over the last two months. If we try to apply a classic pattern to this move, we get a flag pattern.

This is typically a continuation pattern that denotes a pause in the down-move from the February 2012 peak of 48. Continuation of this move will give the minimum target of 59.5. The currency pair will have to strengthen beyond 54 to mitigate the bearish medium-term view. Targets on rally above 54 will be 53 and then 52.

If we extrapolate the long-term down-move that began from the July 2011 peak of 44, we get the first target at 54.9 and the next target at 58.8. Since the currency pair has already crossed the first target, current decline can end anywhere between 55 and 59.

Key short-term support for the currency is at 56.1. This level needs to be breached before the currency moves on to 57.3. Short-term resistances for the dollar rupee will be at 54.7 and 54.2.

Euro-rupee : Though the rupee is moving in a range against the dollar, it has depreciated 5 per cent against the euro since July 23.

Immediate target for this pair is the previous low at 71.9. Since this level halted the currency pair’s decline in November 2011 as well as in June 2012, it can once again reverse the down-move.

But inability to do so will take the currency pair lower to 76. Close above 67 is required to signal that the medium-term view for the currency is turning positive.

COMMENT NOW