The currency market has turned volatile once again, with emerging market currencies bearing the brunt of the selling pressure. While the Turkish lira and Argentinean peso were the worst hit in the latest bout of turbulence caused by political worries and concerns on slowing growth, other currencies such as the South African rand and Indian rupee were not spared either.

The RBI and US Federal Reserve meeting this week made currency traders edgy right from the outset of last week.

The currency fell from its intra-week high of 61.45 to a low of 62.72, losing 1.8 per cent to 62.68.

While there were no local economic data releases last week, weak manufacturing output expectations from China impacted all currencies.

The financial market, which was preparing for a policy rate cut or maintenance of the status quo in the RBI meeting this week, turned jittery last week.

Foreign institutional investors continue to be net buyers. However, this is not supporting the currency. They bought $434 million in debt and $214 million in equity in the past week.

Weak Asian cues The Bloomberg-JP Morgan Asia Dollar Index (ADXY), an index of Asian currencies (ex-Japan), is giving weak signals. The index has dropped below its key support level of 115.3 and closed at 115.1 on Friday.

There is a danger of this index falling to 114 or even 113.5 in the coming weeks, a bad sign for the rupee.

Dollar Index The dollar index reversed sharply last week from its short-term resistance level of 81.5, triggered by a sharp rise in the euro, pound and yen.

The euro rose on the back of strong manufacturing data, while the unemployment rate falling to 7.1 per cent in he UK triggered a rally in the pound, though it lost ground in later sessions.

Increased risk-aversion is making the yen, which is considered a safe haven, stronger.

The dollar index remains weak, with resistances at 80.75 and 81. Below these resistances, it can fall to 80 or 71.8.

A weak close below 62 last week leaves the short-term outlook bearish for the rupee. Resistances for the currency are at 62 and 61.8, while support is found at 63.1 and 63.6.

Dollar-rupee outlook As long as the rupee trades below 61.8, a fall to 63.1 looks likely. If the 63.1 level holds, the rupee can reverse higher to 62 and 61.8 there after.

A fall below 63.1 will increase pressure on the currency and will drag it lower to 63.6 in the later part of the week.

For the medium-term, 61-64 is the broad range in which rupee can trade. A breakout of this range will decide the trend thereafter.

A fall below 64 will see rupee weakening to its next supports of 64.85 and 65.79. On the other hand, a breach of 61 can take it higher to 60 or 59 in the medium-term.

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