The turmoil in global financial markets continued last week as Morgan Stanley downgraded global economic growth and fears of another recession loomed large. This sent equity prices spinning lower and gold and other safe-haven assets surged.

Rupee too declined against the dollar, impacted by FIIs pulling funds out of secondary market and increased demand for dollars from importers.

The dollar was, however, quite resilient. The dollar index dipped to the support around 73.5 and then moved sideways as talks for further quantitative easing soothed sentiments. Key short-term resistances for this index are 74.7 and 75.4 while 73.4 and 72.7 are the short-term supports.

Dollar-rupee outlook: The rupee was extremely weak against the dollar over the past fortnight. It moved below our first medium-term support at 45.4 to record the trough at 46.1 on Monday. The entire region between 46 and 46.3 is the key medium-term support zone. As we have been reiterating, the medium-term range for the currency was between 44 and 46 since October 2010.

Decline below the floor of this range (46.3) will tilt the scales in favour of the bears. Further declines to 47, 47.4 or 47.7 then become possible. On the other hand, reversal from the aforementioned support zone will propel the rupee higher to 45.23 or 44.7 in the upcoming weeks.

The long-term trend in the dollar rupee pair continues to be up and a strong weekly close below 47.1 is required to put this view under threat.

USD-INR futures continued to march higher and reached the peak of 46.1 on Monday. The contract has made significant medium-term peaks around 46 in November 2010 and again in January this year. It is quite possible that the contract reverses from here to decline to 45.25 or 44.7 in the days ahead.

Targets on a move beyond 46.1 are 46.27 and 47.45.

EUR-INR futures: There was no abatement in the rally in the EUR-INR futures and the contract has almost reached our furthermost target at 66.7. This is the all-time high for the contract given its limited trading history.

If we consider the chart of the underlying, there is strong resistance around current levels. Strong close beyond 66.7 will signal that the contract can head further to 68 or 70 in the weeks ahead.

GBP-INR futures: There was no let-up in the upward momentum in the GBP-INR futures and the contract went on to a record high of 76 on Monday. There was a mild pull-back on Tuesday that can cause a decline to 74.9 or 74.1 in the days ahead. Traders can hold their long positions as long as the contract trades above the first support.

Next medium-term target for the contract is 78.7.

JPY-INR futures: This contract also rallied to record highs over the past fortnight. If we extrapolate the move from the April 2010 low, we get the targets of 61 and 66. Traders can therefore buy in declines with stop at 58.6. Subsequent supports are at 58.1 and 57.6.

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