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The Indian currency market received a jolt when Raghuram Rajan decided not to continue as the RBI Governor for the second term.
The rupee opened with a huge gap-down on Monday at 67.79 but recovered on reported intervention from the RBI.
However, the currency continues to remain under pressure and it lacks the momentum to strengthen beyond 67 for now. The rupee closed at 67.48 on Wednesday, down 0.5 per cent for the week.
Brexit focusThe focus of the entire world will be on the UK referendum today, which would decide whether Britain will stay within the European Union (EU) or leave the amalgam.
The global currency market would go for a toss if the UK decides to leave the EU.
A serious sell-off in the euro and the pound and other risky assets is possible in such a scenario.
The US dollar in that case may gain sheen, which in turn can put the rupee under pressure.
On the other hand, if the UK votes to remain in the EU, then risk appetite can fire up a sharp rally in risky assets.
Safe havens like the dollar may witness a sell-off in that case. The rupee may strengthen beyond 67 in such a scenario.
Whatever the outcome of the UK referendum, volatility is guaranteed.
The dollar index (93.9) is getting strong support at 93.4. It hit a low of 93.42 on Tuesday and reversed higher from there.
While above this support, a rise to 95.2 is possible in the coming days.
A strong break and a decisive close above 95.2 can boost the bullish momentum and can take the index higher to 96 or even 96.5.
The outlook for the index will turn negative only if it marks a decisive decline below 93.4. Such a fall can drag the index lower to 93 and 92.5.
The outcome of the UK referendum will decide whether the dollar index will sustain above 93.4 or fall below this crucial support level.
Rupee outlookTechnically, the outlook for the rupee remains bearish. Charts suggest that any positive impact on the rupee from the Brexit vote will be limited.
The psychological level of 67 will be a key barrier that has to be breached for the currency to gain momentum.
But the price action on the charts suggest low probability of a break above 67 unless a huge gap-up is seen after the UK referendum outcome.
The 200-day moving average at 66.7 and a trendline resistance near 66.5 can cap the upside in the short term, if the rupee manages to strengthen beyond 67.
On the other hand, 67.75 is a key immediate support for the rupee.
A strong break below it can drag the currency lower to 68 and 68.25 in the short term.
Such a move will keep the medium-term bearish view intact for a fall to 69 or even lower.
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