The Indian rupee continued its short-term uptrend last week. It made a high of 67.01 before closing at 67.06 on Wednesday, up 0.6 per cent for the week.

A strong surge in the Indian equity markets aided the rally. The benchmark indices – Sensex and Nifty 50 – rose over 2 per cent in the past week.

An increase in inflows from Foreign Portfolio Investors (FPIs) also helped the rupee gainstrength. FPIs brought in $473 million in the debt segment, while the equity segment saw an inflow of $288 million.

Rupee is currently hovering below the psychological resistance level of 67. Whether the currency manages to break above it or not will decide the next move. Macro-economic data releases in the past week were mixed. The Index of Industrial Production (IIP) for the month of May rose 1.2 per cent after falling 1.4 per cent in April.

On the other hand, the Consumer Price Index (CPI) inflation remains elevated; it inched slightly higher to 5.77 per cent in June from 5.76 per cent in May. However, the rise in food inflation remains a worry.

Food inflation rose to 7.79 per cent in June, from 7.47 per cent in May. High inflation has lowered the hopes of another rate cut from the Reserve Bank of India, which is a negative for the rupee.

Following the CPI, the Wholesale Price Index (WPI) inflation numbers will be out on Thursday. A higher WPI will add fuel to the concerns. Trade (export, import) data is also due for release this week.

Dollar outlook The 200-day moving average at 96.5 continues to restrict the upside in the dollar index (96.35). As long as it remains below this resistance, a range-bound move between 95 and 96.5 is possible in the short term.

A strong break and a decisive close above 96.5 are required for the index to gain bullish momentum. Such a break can take it higher to 98 or even 98.5. It will also increase the possibility of the dollar index revisiting 100 levels. Such a rally in the dollar index can limit the upside in the rupee and may trigger a reversal.

If the rupee breaks above 67, the current upmove can extend to 66.80. The key 200-day moving average resistance is poised at around 66.80. This hurdle can limit the short-term strength in the rupee. A reversal from 66.8 can take the rupee lower to 67 and 67.30 thereafter.

The upside in the rupee could be capped at 66.5 and 66.3, which are the strong medium-term trend-line resistances. A break above these levels is less likely, while below these levels, the medium-term view will remain bearish.

There is significant support for the rupee at 68. A strong break and a decisive weekly close below this support will accelerate the decline and drag the rupee to the previous low of 68.85 recorded in August 2013. Such a break will also open the doors for a fresh low, going forward.

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