The Indian rupee was stuck and oscillating around the psychological level of 60 all through last week. The currency moved in a range between 59.92 and 60.24 and closed at 60.02, up by 0.23 per cent. Clearly, the market is waiting for a trigger, in the form of the election results, to set the trend for the coming weeks.

Although foreign institutional investors (FIIs) turned net buyers of debt last week after having been net sellers four consecutive weeks, the rupee struggled to strengthen decisively beyond 60. The FIIs bought $404 million in debt last week after selling $1.48 billion over the previous four consecutive weeks.

Volatile signs

With the exit poll results due on Monday and the actual outcome of the general election to be out on Friday, the market is sure to see a high degree of volatility this week. In the run-up to the election outcome, macro-economic data scheduled to be released this week might not influence currency movements. The consumer price inflation (CPI) and industrial production (IIP) data release is on Monday and wholesale price inflation data is due on Thursday.

The dollar-index rose sharply last week after testing its significant long-term support at 79. The euro tumbled after European Central Bank President Mario Draghi signalled the possibility of policy easing next month, which helped the dollar-index reverse sharply higher. The index could test its resistance at 80.2 in the coming week. A break above this level could take it higher to 80.5 and 81 in the coming weeks.

Dollar-rupee outlook

A breakout on either side of the 59.9-60.3 range will decide the short-term trend. If the rupee declines below 60.3, it could weaken to 60.6 and 60.7. On the other hand, a breach of 59.9 could see the currency strengthen toward 59.75 and even 59.5 in the short-term. A rounding pattern is visible in the daily candle stick chart, which indicates higher probability of the rupee weakening toward 60.6 and 60.7 in the short-term. However, the medium-term outlook continues to be bullish for the rupee. Key support is at 61. Only a strong fall below this level will turn the medium-term outlook negative.

In case of such a fall, the rupee could weaken to 62 and 62.5. But as long as the rupee remains above 61, the chances of it strengthening to 59 and 58.5 in the medium-term cannot be ruled out.

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