Rupee spins lower again

Rupee spiralled lower once again on Monday as the IIP numbers revealed that industrial production had contracted 5.1 per cent in October. Deceleration in export growth and the controversy over over-statement of this fiscal's exports added further pressure on the Indian currency. It went to touch a new low of 53.5 on Tuesday before closing a little higher at 53.19.

Failure on part of the EU summit to come up with a solution to the ongoing euro debt crisis brought turbulence back to financial markets. With the Damocles sword in the form of rating downgrade threat hanging over many nations in the euro zone, risk aversion is likely to rule high in the weeks ahead.

This helps the greenback, making the dollar index move up to 79.6. This index faces immediate resistance around 80. Break-out targets are 80.7 and 81.4.

Dollar-rupee outlook: The rupee caved in on Monday to decline below its all-time low recorded on November 22. Third wave of the down-move that began from the July peak of 43.8 gives us the targets of 52.6 and then 55.1. If we consider the sub-minor counts, we get targets of 53.7 and then 55.3.

Rupee has already achieved the first target of its medium-term count (53.7). The star with long upper shadow in daily Japanese candlestick chart denotes a short-term pause at this level as the currency moves up to 52.6 or 52.1. A close above 51.2 is needed to mitigate the bearish near-term view.

If the rupee is unable to move beyond 52 in the upcoming sessions, a dash to the next medium-term target of 55 will be on.

USD-INR futures contract moved contrary to our expectation, to the peak of 53.7 on Tuesday. Short-term supports will be at 52.8, 52.3 and 51.1. Traders can hold their long positions only as long as the contract trades above the first support.

If this level remains untested, the contract can move higher to 53.7, 54.3 or 55.3 in the sessions ahead.

EUR-INR futures closed near the short-term resistance at 70.4 on Tuesday. The contract needs to move above this resistance to signal the intention to move to the next target at 71.3.

But reversal from this level will result in decline to 69.7 or 69.

GBP-INR futures contract too moved beyond our outermost target to the high of 83.8 on Tuesday. Immediate supports are at 82.4, 81.6 and 80.2. Traders can hold their longs as long as the contract trades above the first support. Next short-term target is 84.9.

JPY-INR futures went on to a record high of 68.9 on Tuesday before closing slightly lower. Short-term supports for the contract are 67.7, 67.4 and 67. Traders can buy in declines as long as it trades above the first support. Upper targets are 68.9 and 70.8.