Range-bound movement in rupee

The rupee strengthened to 44.1 against the dollar towards the end of last week, helped by portfolio inflows into the equity market and sale of dollars by exporters. But the currency reversed lower again this week as stock markets turned turbulent. Month-end dollar demand from oil importers also applied downward pressure on the Indian currencies.

The dollar is quiet ahead of the FOMC meeting scheduled this week. The consensus veers towards the view that the US will not roll-back the stimulus measures soon. The ECB Governor Mr Jean Claude Trichet's statement that a strong dollar is in the interest of the US also helped the greenback. The dollar index moved to the support at 74 indicated last week and is hovering around the support at 74. Next medium-term support is at 71.3.

Dollar-rupee outlook

The rupee rallied to 44.2 last Thursday. But it could not sustain at that level and closed the session at 44.37. We stay with the view that the currency has strong short-term support around 44.75 and failure to penetrate this level can make the currency oscillate between 44 and 44.7 for few more weeks.

The medium-term trend in the rupee is however up. If the currency continues to trade above 44.75, it will mean that the currency can break out to 43.4 or even higher over the ensuing months.

USD-INR futures

USD-INR futures declined to the trough at 44.26 before moving higher on Monday. Immediate resistance is at 44.65. Traders can initiate fresh short positions on a failure to move above this level. In this event, the contract can decline to 44.23 or 44 in the near-term. Resistance on a move above 44.65 will be at 44.9. This is the key short-term resistance for the contract and volatility will continue as long as the contracts trade below this level.

EUR-INR futures

EUR-INR futures displayed strength by moving to the peak of 65.2 on Tuesday. Since the contract is continuing to record consecutive peaks and troughs, the medium-term trend continues to be firm and the contract can move up to 66.2 in the upcoming weeks. Investors can buy in declines as long as the contract trades above 64.

GBP-INR futures

GBP-INR futures moved in line with our expectation and achieved the target of 73.4. But the contract faces strong resistance in the zone between 73.5 and 74 and fresh long positions are recommended only on a close above this band. Subsequent target is 74.5. Short-term supports for the contract would be available at 73 and 72.7.

JPY-INR futures

JPY-INR futures moved to our short-term resistance at 54.4 on Tuesday but the closing in this session was tentative. Traders can divest their longs on failure to move above this level in the ensuing sessions. However, move above 54.4 can take the contract to 55 and then 56 in the following weeks.

Short-term supports would be at 54.17 and 53.88.

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