The last week of January saw the Indian rupee snapping its four-week streak of positive closes. The currency opened after an extended Republic Day weekend at 61.48 on Tuesday and strengthened to 61.29 on Wednesday. But things started to reverse and the rupee fell to 62.03 on Friday and closed at 61.87, down 0.7 per cent for the week.

What triggered this reversal? Reports suggest that it could be strong month-end dollar demand. Strong inflows from foreign portfolio investors (FPIs) failed to lend support. FPIs bought $883.69 million in debt and $1.12 billion in equity in the past week, taking the total inflows for January to $5.35 billion, the highest since July 2014.

Data watch

Fiscal deficit and GDP data were released last week. India’s fiscal deficit widened to ₹5.32 lakh crore during the April-December period and exceeded the full-year target of ₹5.31 lakh crore. But the revision of the base year for calculating the national accounts to 2011-12 could help the government achieve the target of 4.1 per cent of GDP. The Indian economy grew by 6.9 per cent in 2013-14. Data due for release this week includes HSBC’s Manufacturing Purchasing Managers’ Index (PMI) on Monday and Services PMI on Wednesday. After a surprise rate cut last month, all eyes will be on the Reserve Bank of India’s meeting on Tuesday.

Dollar-rupee outlook

The US Federal Reserve reiterated its intent to ‘stay patient’ before starting to hike rates. It also remained ‘concerned’ about slow growth in the housing sector.

The dollar index fell to a low of 93.7 initially, but recovered to close the week at 94.85. Key resistance is at 95.3. A decisive break above this hurdle is required for a rise to 97.5. But a sharp reversal from 95.3 could trigger a corrective fall to 94 or 92. The short-term outlook for the Indian rupee seems to be turning bearish. Last week’s reversal from 61.29 has happened from a key trend-line resistance.

Though Friday’s candle looks indecisive, the weekly chart suggests a reversal. Immediate support is at 62, a break of which can take the rupee lower to 62.3 this week. It will also open the door for a fall to 62.75 thereafter.

Resistance is at 61.55 which has to be breached for the rupee to strengthen to 61.3 and 61.1.

However, the medium-term bearish outlook remains intact with key resistances at 61.1 and 60.75. As long as the rupee trades below these levels, a revisit of 63-64 levels looks likely.

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