Global Investor

Rupee nears short-term hurdles

Gurumurthy K | Updated on January 24, 2018



The short-term strength in the currency is expected to be limited to 63 levels

The Indian rupee began the week with the threat of a sharp fall as it opened with a gap down at 63.84 on Monday and fell to a low of 63.94 on the same day. The rupee took cues from the euro which opened with a huge gap down following the referendum announced by Greece over that weekend. However, it gained ground thereafter and rose to a high of 63.35 on Friday before closing at 63.44, up 0.32 per cent for the week.

Macro economic data releases on the domestic front were mixed. The fiscal deficit for the first two months (April, May) of this fiscal came in at ₹2.08 lakh crore, which is 37.5 per cent of the full year estimate of ₹5.56 lakh crore. This is comparatively better than the 45.3 per cent we saw for the same period last year. But HSBC’s Manufacturing Purchasing Managers’ Index (PMI) failed to give a supporting hand. In June it fell to 51.3, from 52.6 the month earlier. The index has been oscillating between 51.2 and 52.6 since February, suggesting a kind of stagnation in manufacturing activity. These data releases did not have any major impact on the rupee.

However, the US jobs data which was released on Thursday helped the rupee gain momentum on the final trading day of the week. The unemployment rate fell to 5.3 per cent in June from 5.5 per cent in the previous month. However, the average hourly earnings of employees, one of the much-watched labour market indicators by the US Federal Reserve, fell 2 per cent (year-on-year) in June from 2.3 per cent in May. The dollar got sold off after this data release as the market started to speculate about a delay on the rate hike cycle.

This helped the rupee breach its resistance at 63.50 and strengthen to the week’s high of 63.35 on Friday.

All eyes on Greece

After the market opens today, the outcome of the Greece referendum would be known. The global financial market, especially the currency market has remained resilient to the whole Greece drama in the recent times, except for the sharp gap down opening in the Euro last Monday after the referendum was announced.

It looks like Greece’s failure to repay the International Monetary Fund has already been factored in by the market. But caution is needed as volatility is guaranteed at least for some time. If the euro witnesses a panic sell-off, this could very well jolt the global financial markets.

The rupee could come under pressure and fall sharply in such a scenario.

Dollar outlook

Weak US job numbers played spoilsport to the sharp rally in the dollar index (96.11) that had begun from the low of 94.68 last week. The index has reversed slightly lower from the high of 96.42. On the charts, 95 looks to be a strong support for the index and there is no immediate danger of any sharp fall in the near term as long as the index trades above this level.

Resistance is at 96.5, a strong break above this can take the index higher to 97 and 97.5.

The index will come under pressure if it records a strong fall below 95. Such a break can then drag the index lower to 94 or may be even 93.

Rupee outlook

The rupee has strengthened in the past week in line with expectations. The bullish view for the targets of 63.30 and even 63 mentioned in this column last week remain intact.

The currency has breached a key 55-day moving average resistance at 63.65, which has been restricting upsides for some time. This level could now act as a good support for the rupee.

The currency could extend its upmove in the coming week as well. A test of 63.19 looks likely in the coming days. A break above this level will see the rupee strengthening to 63.10 and 63 thereafter.

A reversal from the 63.19-63.00 resistance zone can take the rupee lower to 63.50 and 63.65. The short-term strength in the rupee is expected to be limited to 63 — a psychological resistance or 62.75 — the target of the triangle reversal pattern on the daily chart as well as a trendline resistance.

The rupee will come under fresh threat only on a strong break below 64. The level of 64.30 is a key support for the rupee, a break of which can drag it lower to 64.83 – the Fibonacci retracement support level in the coming weeks. The move after a break below 64.30 to 64.83 could be sharp and swift.

Published on July 05, 2015

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