Bullish short-term view for rupee

The Indian rupee was stuck in a sideways range between 60.85 and 61.38 in the past week. The currency weakened to 61.38 following comments by the US Federal Reserve’s new Chair Janet Yellen that interest rates in the US would begin moving higher in around six months, signalling the winding down of the quantitative easing programme. However, the rupee reversed higher in the final trading session, helping it close 0.4 per cent higher for the week at 60.93.

In the absence of any major macroeconomic data releases in the past week as well as in the coming week, future movement in the rupee will be largely influenced by global factors.

Foreign institutional investors (FIIs) turned net sellers of debt. After pumping in $4.4-billion over the past five weeks, they sold $218-million in debt last week. However, they remained net buyers of equities for the fifth consecutive week, purchasing stock worth $740-million.

The dollar index was on the verge of falling toward 79, but reversed sharply higher after Yellen's comments. The index ended the week close to its resistance at 80.5. A break above 80.5 could take it higher to 81.3. On the other hand, failure to breach 80.5 could drag the index lower to 79.5 again.

In the short-term, the rupee is expected to continue trading in a sideways range between 60.6 and 61.55. The reversal from 61.38 has increased the probability of the currency strengthening within this range, though resistance is seen at 60.85. A break below this level could take the rupee higher to 60.6.

On the other hand, the rupee may weaken to 61.45 if it fails to breach 60.85. The 21-day moving average at 61.45 is a key short-term support. Declines below this support could take the rupee lower to 61.7.

In the medium-term, 60.6 is a key resistance level for the rupee.

The broad medium-term sideways range is expected to remain intact while the rupee trades below this resistance. However, a technical analysis of price action suggests that the rupee could break this range and strengthen beyond 60.6. On the weekly line chart, there is a bullish breakout of a triangle pattern. Key support for the currency is at 61.7, the 200-day moving average and then at 62. As long as the rupee trades above 62, the chances of it strengthening to 60 and even 59 cannot be ruled out.

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