Money & Banking

Rupee stuck in a range ahead of Budget

Gurumurthy K BL Research Bureau | Updated on January 20, 2018 Published on February 24, 2016


But a strong dollar and fall in crude oil prices can limit the upside

The rupee is stuck near a crucial medium-term resistance. The currency has been trading in a narrow range between 68.45 and 68.68 over the last three days. It closed at 68.54 on Wednesday, down 0.11 per cent for the week.

It is surprising that the rupee is managing to remain insulated from further fall despite the strength of the US dollar and a strong outflow of funds via foreign portfolio investors (FPIs) in the debt segment. These investors sold $550 million in Indian debt in the past week. The RBI could be intervening in the forex market to keep the market calm ahead of the Union Budget on Monday.

But crude oil can once again play spoilsport since Saudi Arabia, on Tuesday, ruled out any possibility of production cut. A fall in oil prices in the coming days might keep global markets under pressure. In turn, this will impact the chances of the rupee strengthening in the next couple of days. However, the focus would turn to the Budget on Monday.

The Budge announcements will drive the market for the rest of the week. Also, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI), which is due for release on Tuesday, may have an impact on the rupee movement.

The dollar index (97.60) has risen sharply, breaking above an important resistance at 97. The outlook is bullish. An inverted head and shoulder bullish reversal pattern is visible on the daily chart.

The neckline support of this pattern is at around 97. While the index remains above this support, a rise to 98 and 98.50 — the target of the reversal pattern — looks likely in the short term. Also, a strong weekly close above 98 will add to the bullish momentum.

In such a scenario, the possibility of the index rising further to 99 or even revisiting 100 levels cannot be ruled out. A strong dollar index suggests that the upside in the rupee could be limited.

Rupee outlook

The rupee is stuck between 68.4 and 68.7, which are important near-term resistance and support levels. A breakout on either side of these levels will decide the next leg of movement. A break above 68.4 can see the rupee strengthening to 68.2 and 68 in the coming week. If the currency manages to break above 68, then the up-move can extend to 67.65 and 67.5 in the short-term. On the other hand, a break below 68.7 will increase the downward pressure, dragging the currency to 69.

The medium-term view remains bearish with strong resistance in between 67 and 66. So, any reversal from the current levels could be short-lived and could be capped at 67 and 66. As long as the rupee trades below this resistance zone, the chances of it falling to 69.5 and 70 cannot be ruled out.

There is an important support around 70. As mentioned in this column last week, there is a strong likelihood of the rupee bottoming out at around 70.

Published on February 24, 2016
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