Money & Banking

Rupee gears up for action-packed week

Gurumurthy K BL Research Bureau | Updated on June 11, 2018

Volatility guaranteed with a series of key events scheduled for this week

The Indian rupee has been turning volatile over the last couple of days after having been stable for the most part of the past week. The currency, after hovering around 67 for a few days, witnessed a sudden fall on Friday. It made a low 67.78 on Friday, but recovered slightly from there to close at 67.42 on Monday.

The currency market is gearing up for a volatile week packed with a series of key events. The historic meeting between US President Donald Trump and North Korean leader Kim Jong Un is the first event to watch on Tuesday.

Though Trump has said that this is just the beginning of a long process, any signs of disagreement between the two leaders could turn the markets risk-averse. In such a scenario, emerging market currencies like the rupee can run into a sell-off. The second part of the week is packed with a series of major central bank meetings. The US Federal Reserve meet is due on Wednesday.

It will be followed by the European Central Bank (ECB) and the Bank of Japan (BoJ) meetings on Thursday and Friday, respectively.

A 25-basis point rate hike by the Fed is largely priced into the market.

Any hint an increase in the pace of future rate hikes could boost the dollar and pull the rupee lower. But at the same time, if the ECB announces its plan on Thursday to end bond purchases, it will trigger a sharp rally in the euro. This, in turn, will help in limiting the downside in the rupee.

Dollar outlook

The dollar index fell sharply in the past week. It is currently trading at 93.60. Resistance is at 94. As long as it remains below 94, a fall to 93 or 92.85 is possible in the coming days. A bounce from 92.85 can ease the downside pressure and take the index higher to 94 again. But a break below 92.85 will increase the selling pressure and will drag the index lower to 92.

Rupee outlook

Price action in the initial part of last week indicates that the rupee lacks strong fresh buyers to take it decisively above 67. Key resistance is in the 66.90-66.80 region. The currency should breach 66.80 to gain strength against the dollar. In that case, the rupee can strengthen to 66.5 or 66.30 in the short term. But such an upmove looks less probable at the moment.

Immediate resistance is in the 67.20-67.15 region, which is likely to cap the upside in the near term. A fall to 68 is likely in the coming days. A strong break above 68 will see the rupee weakening towards 68.3 and 68.5 levels thereafter.

Published on June 11, 2018

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