The Indian rupee continues to retain strength against the US dollar. Indeed, the currency made its best weekly gains since March 2016. The rupee strengthened sharply, breaking above the psychological level of 71. It made a high of 70.30 before closing at 70.87 on Monday, up 1.1 per cent for the week.

Oil prices

The continuous slide in crude oil prices is aiding the rupee to gain strength against the US dollar. WTI crude oil prices plummeted 12 per cent last week from around $57 per barrel to $50 per barrel. Oil prices have been in a free fall, falling over the last seven weeks consecutively. WTI crude is currently trading at $51 per barrel, and has a crucial support in the $50-$49 region.

If oil manages to sustain above $49, a corrective rally to $55 is possible in the coming days. Such an upmove in oil can restrict the strength in the rupee in the near term. But if oil breaks below $49, prices can fall further to $47 or even $45. Such a fall in oil can take the rupee higher towards 69 against the dollar.

Rupee outlook

The pull-back move from 70.30 on Monday is technically significant. The level of 70.32 is the 31.8 per cent Fibonacci retracement resistance level. As long as the rupee remains below 70.30, there is a strong likelihood of a corrective fall in the near term.

Inability to breach 70.30 can drag the rupee lower to 71.35 in the near term. If it manages to reverse higher from 71.35, it can strengthen back to 70.5 and 70.3 levels thereafter. But a further break below 71.35 will then increase the likelihood of the corrective fall extending to 71.90 and 72 over the short term. However, the broader upmove that has been in place since October from the record lows of 74.48, still remains intact. As such, any corrective fall in the coming days is likely to be short-lived.

An eventual break above 70.30 will see the rupee strengthening towards 69.5 and 69 against the dollar in the coming weeks.

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