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The rupee strengthened to 44.1 over last week buoyed by continued purchases by FIIs in equity markets. However, as the European debt crisis rekindled, with concerns on Italy's ability to repay its debt, financial markets went into a tizzy again. The rupee, too, reversed sharply lower against the dollar this week.
The euro weakening against the dollar against the backdrop of the ongoing troubles in Europe applied downward pressure on the Indian currency. The greenback meanwhile strengthened on rising risk-aversion and a weak euro. The dollar index that had moved below 75 in the first week of July, once more jumped to the key short-term resistance at 76.3. A close above this level will imply a medium-term reversal for the currency.
Dollar-Rupee outlook
The dollar-rupee pair remained strong last week but it did not rally to 44.2 as per our expectation and instead reversed from the peak of 44.3 recorded on Friday. Immediate support that needs to be watched is at 44.7. Inability to move below this level will result in the currency rallying to 44.5 or 44.3 again in the days ahead. However, a decline below 44.7 will drag the currency further to 44.8 or 45. Short-term outlook will stay positive as long as the currency trades above 45. We adhere to the view that both the medium and long-term trends are currently up. The currency needs to decline below 46 to negate this view. Short-term trading range is between 44.2 and 45.2.
USD-INR futures
USD-INR futures achieved our first downward target but it reversed from the trough of 44.4 on Friday. The contract faces strong resistance at 44.82 and fresh longs are advised only on close above this level. Inability to do so will make the contract retreat to 44.7, 44.6 or 44.4 in the upcoming sessions. However close above 44.82 will mean that the contract can rally to 44.95 or 45.
EUR-INR futures
The floor caved in for EUR-INR futures as the contract lost about 3.7 per cent in the last five sessions. The contract went on to record the trough of 62.1 on Tuesday. Immediate supports are at 61.7 and 61.3. Traders can stay watchful for a bounce from these levels. Short-term resistances are at 63.4 and 64.3.
GBP-INR futures
There was no bottom in sight for GBP-INR futures as it slid continuously to the low of 70.8 on Tuesday. Subsequent targets downward are 70.6 and 70.1. Traders can hold their shorts with stop at 71.45. Subsequent resistances are 72 and 72.4. The contract needs to close above 72.4 to indicate that the short-term trend has reversed higher.
JPY-INR futures
JPY-INR futures recorded a low of 54.6 before the sharp reversal this week. The contract faces strong resistance in the band between 56 and 56.5 and fresh long positions are advised only on a close above 56.5. Short-term supports will be at 55.4 and 54.6.
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