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Gurumurthy K
The Indian rupee continues to remain range-bound. The currency has been stuck in a sideways range between 68.25 and 69.10 over the last three weeks. Within this range, the rupee fell to a new all-time low of 69.12 on Friday. Though the rupee recovered sharply from this low, it failed to sustain at higher levels. The currency reversed lower again after making a high of 68.66 on Monday and has closed at 68.86, down 0.6 per cent for the week.
The reversal over the last few weeks every time the rupee falls below 69 gives an indication that the RBI could be intervening and preventing the currency from a further sharp fall. This increases the concern that if the rupee declines decisively below 69 in the coming days on the back of any external factors, then the subsequent fall could be very sharp and swift.
US dollar mixed
The US dollar index came off sharply after making a high of 95.65 on Thursday last week, givingsome relief to the rupee. The dollar index is currently at 94.45, and is likely to test its key resistance level of 93.9. A bounce from this support can take the index higher to 95 and 95.5 levels again. A range-bound move between 93.9 and 95.6 is likely in such a scenario, and a breakout on either side of 93.9 or 95.6 will decide the next move.
If the dollar index breaks below 93.9, it can fall to 93 or 92.8 in the short term. On the other hand, a rise past 95.6 can take the index higher to 96.25 initially. A further break above 96.25 will increase the likelihood of the index targeting 97.35 and 98 thereafter. Such a rally in the index will increase the pressure on the rupee, and can drag the currency to 70 or even lower levels in the coming weeks.
Rupee outlook
The sideways consolidation between 68.25 and 69.10 can continue in the near term. However, the bias remains bearish. The indicators on the charts are also giving negative signals. The 21-week moving average has crossed well below the 55-, 100-, and the 200-week moving averages. Also, the 55-week moving average has just crossed the 200-week moving average, and is on the verge of moving below the 100-week moving average. This is a negative signal, indicating that the strength in the rupee could be limited.
This reduces the possibility of the rupee strengthening above 68.25 in the coming days. Also, even if the rupee manages to breach 68.25, the next strong resistance in the 67.9-68 region is likely to cap the upside.
As such, the rupee is likely to fall to new lows, breaking decisively below 69.10 in the coming days. A fresh trigger can drag it sharply below 69.10.
Such a break will pile up additional pressure on the currency, and will take it lower to 69.5 and 70 levels in the short term. It will also pave the way for the medium-term targets of 71 and 72 levels in the coming months.
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