Crude oil continues to jolt global markets. Russia and Saudi Arabia’s agreement earlier on Tuesday to limit oil output to their January production level failed to convince the market.

Other members of the Organization of the Petroleum Exporting Countries (OPEC) have also agreed for the same, but with a condition that Iran and Iraq should freeze their production levels.

But Iran, gearing up to boost its production after the removal of sanctions, has indicated it will not agree to limit production. The uncertainty is keeping global markets nervous.

The Indian rupee managed to remain broadly range-bound the whole of last week, in spite of the turmoil in domestic stock markets. But, the currency seems to be losing ground now after a gap-down below 68.5 on Wednesday.

Reversal in dollar index Fall in crude oil prices, and a sharp reversal in the dollar index, have together taken the rupee lower by about a per cent in the past week. Rupee fell to a low of 68.67 on Wednesday, but recovered slightly to close at 68.47.

There is no major economic data release on the domestic front this week. So, oil prices as well as the dollar index movements will continue to influence rupee movements in the upcoming truncated trading week. The currency market is closed on Friday for a public holiday.

The actions of foreign portfolio investors (FPIs) will also need a close watch. Their selling seems to be intensifying, especially in the equity segment. They had sold $308 million in debt and $539 million in the equity segment in the past week.

The dollar index (96.80) has reversed sharply higher from an important support level of 95.50. Strong support for the index is in the 95.70-95.50 zone. On the charts, there is no danger of any further fall in the index, as long as it trades above this support zone. For the index, immediate resistance is at 97. A strong break above this hurdle can take it higher to 97.75 and 98 thereafter. Such a rise in the dollar index could drag the rupee further lower.

Rupee outlook The dollar index will come under renewed pressure only if it breaks and closes decisively below 95.5 on a weekly basis. The next target will be 95. Further break below 95 will increase the danger of the index falling to 94 thereafter.

Rupee has a very important support at 68.8 and 69. But given the current uncertainty in the global markets, the possibility of breaking this support remains high, unless the Reserve Bank of India intervenes. Also, the presence of immediate resistance at 68.45 and 68.25 is likely to limit the upside for the rupee in the near term.

A strong break below these supports at 68.8 and 69 can see the rupee weakening to 69.7 or even 70 thereafter. The possibility of the rupee finding a temporary bottom around 70 levels cannot be ruled out.

On the other hand, if the currency manages to reverse higher from the 68.8-69 support zone, it can move higher to 68.45 or 68.25 in the coming week. The 21-day moving average near 68 could limit the short-term strength in the rupee to that level.

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