Portfolio

Rupee in sideways range

Gurumurthy K | Updated on March 09, 2018 Published on April 24, 2017

Currency call eps

Weak dollar aids in limiting the downside

The rupee continued to consolidate for the second consecutive week. The currency has been trading between 64.26 and 64.74 over the last two weeks.

Within this range, the rupee fell to a low of 64.72 on Thursday. However, the currency managed to recover from this low and closed at 64.43 on Monday.

Interestingly, the rupee has not gained much in the past week despite a sharp 1.5 per cent fall in the dollar index, from around 100.5 to 98.95.

The British Pound surging over 2 per cent last Tuesday (April 18) after Prime Minister Theresa May called for an early election in June dragged the dollar index below the psychological 100 mark last week.

The pressure on the index increased further on Monday as the euro surged over a per cent following the outcome of the first round of French elections.

The dollar index is hovering around the 200-day moving average. Inability to bounce from current levels can take it lower to 98.65, which is the next key support. A break below this level will increase the likelihood of the index falling to 98.20 or even 98 thereafter. Such a fall in the dollar index may help limit the downside for the rupee. The level of 99.5 is a key resistance, which may cap the upside in the near term. The dollar index should surpass this hurdle for the downside pressure to ease.

Rupee outlook

Since the rupee retains its sideways range, there is no change in the outlook. The currency can continue to consolidate in a sideways range between 64.25 and 64.80 for some more time.

Within this range the possibility is high of the rupee strengthening to 64.30 or 64.25 in the coming days on the back of a weak dollar.

A breakout on either side of 64.25 or 64.80 will decide the next leg of the move. A break below 64.8 can take the rupee lower to 65.15 initially. Further fall below 65.15 may drag it lower to 66 levels once again.

On the other hand, if the rupee breaks the current range above 64.25, it can strengthen further to 64. The presence of the 200-week moving average at 64 might restrict the strengthening of the rupee in the short term.

Also, even if the rupee manages to break above 64, the upside could be capped at 63.85 where a strong trend-line resistance is present. So the strength in the rupee is expected to be limited to the 64-63.85 resistance zone.

As such, a subsequent reversal from this resistance region can take the rupee lower to 66 levels once again over the medium term.

Published on April 24, 2017
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