Pressure mounts on rupee

Rupee recorded a new life-time low of 52.73 against the greenback on Tuesday. The currency is in a relentless fall since the beginning of November; down almost 8 per cent in this period.

The central bank's inability to intervene in forex market given the low foreign exchange reserves that is getting eroded by the widening trade deficit and lack of portfolio inflows is applying pressure on the Indian currency.

Exporters shorting dollar at lower levels, importers and corporate borrowers with un-hedged positions rushing to take cover now and dollar demand from oil importers are the other factors pushing rupee lower.

Heightened risk-aversion due to worries on mounting debt in US as well as Europe is resulting in money moving back in to dollar assets. As a result, the dollar index moved higher to 78.7. Key resistance for this index is at 78.5. Once this level is crossed, it can head towards its recent peak at 80.4 that is a key medium-term resistance.

Dollar-rupee outlook

This pair has moved below its previous life-time low of 52.1 recorded in March 2009. That calls for a re-look at the long-term picture. The secular trend in the dollar rupee pair is down. If we consider the 25-year chart, the currency pair is in a consistent downtrend since the 1987 peak of 12. One leg of this downtrend ended at 49 in 2002. A protracted sideways consolidation in the range between 40 and 50 is on since then.

Rupee breached the floor of this range in March 2009, but it could not sustain there and rallied to 44 thereafter. Since this is a long-term trend reversal indicator, we need to wait and watch the action for at least 3 to 4 weeks before determining that a long-term break-down has occurred.

If USD-INR pair continues to trade in the 50 to 52 range, it will mean that the currency pair has the propensity to decline further. Extrapolation of the move that began at 39 gives us the targets of 51.7 and 56.7. Medium-term targets of the move that began from the 43.8 peak are 52.37 and then 54.7.

Key resistance in the upcoming sessions will be around 51.1. But the medium-term trend decider will now be 50. Rupee will have to rally above this level to signal a reversal in the medium-term down trend.

USD-INR futures is in a strong uptrend but the shooting star formation on Tuesday signals a short-term pause. The contract could move lower to 52, 51.8 or 51.5 in the days ahead. Traders can buy in declines only as long as the contract holds above the first support. On the other hand, fresh shorts can be initiated on a decline below 51.5.

If the contract manages to move higher, the targets are 52.9 and then 54.7.

EUR-INR futures too shot higher over the past three sessions. Traders can hold their long positions with stop at 69.9. Subsequent supports are at 69.5 and 69. Targets on a move above 71.3 are 72.2 and 75.

COMMENT NOW