The rupee seems to be in a short-term consolidation phase. The currency opened the week on a strong note with an upward gap at 66.12 and recorded a high of 66.04 on Thursday.

But it failed to sustain at the higher level and went on to record a low of 66.48 on Monday.

The currency managed to recover slightly from this low to close on a flat note at 66.32on Tuesday. The Indian markets were closed on Wednesday for a public holiday.

There were no major macroeconomic data releases on the domestic front in the past week. So, the rupee movement was completely influenced by global developments and the dollar movement.

But this week there are a few important economic data releases that could impact the rupee movement. It will begin with the third quarter GDP growth numbers on Monday. It will be followed by the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) reading on Tuesday.

India’s manufacturing PMI has been falling continuously for the last three months to 50.7 in October. Further fall towards 50 or below, signalling contraction in the manufacturing sector, would be negative for the rupee.

The Reserve Bank of India’s monetary policy meeting is also scheduled for Tuesday.

Dollar index

The dollar index (99.37) reversed sharply higher from the low of 98.73 to test the psychological level of 100 on Monday.

The index has retreated from this high. Immediate support is at 99. A reversal from here will increase the chances of the index rising past 100 to test the previous high of 100.4 in the coming days.

A break above 100.4 can take the index to the next target of 101.8 — a key Fibonacci retracement resistance level.

But if the index breaks below the immediate support at 99 now, it can decline to 98.

The rupee is currently receiving support at 66.50. As long as it manages to sustain above this support, a sideways movement between 66 and 66.50 is possible in the near term.

A breakout on either side of this range will then decide the next leg of the move for the currency. A break above 66 can take the rupee higher to 65.75 in the short term.

But the presence of the 21-day moving average resistance at 65.95 might make it difficult for the currency to decisively surpass the hurdle at 66. Also, there is a head and shoulder formation visible on the daily charts.

These factors make it highly likely that the rupee will break below 66.5 in the coming days. Such a fall can take it lower to 66.8 and 67 in the short term.

A strong break and a decisive close below 66.55 will confirm the head and shoulder pattern on the daily chart. It will increase the downside pressure on the rupee.

In such a scenario, the medium-term downtrend will gain momentum. It will then leave the rupee under the threat of a revisit of the 68 level over the medium term.

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