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The rupee, which was threatening to revisit 65 levels early last week, has made a smart recovery.
The currency fell to a low of 64.7 last Tuesday. But a strong rise in the Indian benchmark equity indices on Thursday helped the rupee to reverse higher from its low of 64.7.
Moreover, the US dollar turning weaker towards the end of the week aided the rupee to strengthen further and touch a high of 64.02 before closing at 64.06 on Monday.
The dollar index, which was on the verge of testing the psychological 100 mark, lost momentum and reversed lower after recording a high of 99.89 on Thursday.
The index has come off about 1 per cent from this high and is currently trading at 98.95. The immediate outlook is negative. A near-term dip to test the crucial support at 98.45 is likely in the coming days.
If the index manages to reverse higher from this support, it can rise back to 99.50 and 100 levels once again. In such a scenario, the dollar index could remain range-bound between 98.45 and 100 for some time.
But if the index declines below 98.45, the downside pressure will increase.
Such a break will increase the likelihood of the index falling to 97.85 — the 50 per cent Fibonacci retracement support level.
Rupee outlookThe strong upward reversal from 64.7 last week is keeping the 64-64.80 sideways range intact. Whether the rupee manages to break above 64 or not will decide the next move for it.
Inability to break above 64 and a downward reversal in the coming days will keep the rupee in the 64-64.8 sideways range for some more time. In such a scenario, the rupee can decline to 64.50 and 64.80 once again in the near term.
If the rupee continues to remain below 64, the possibility of it breaking 64.8 will increase.
A strong break below 64.8 can see the rupee weakening to 65.15 initially. It will also keep the rupee under pressure for a revisit of 66 levels thereafter.
On the other hand, if the rupee manages to surpass the immediate hurdle at 64, it can strengthen to 63.85 initially. Further break above 63.85, though less probable, can take the currency higher to 63.60.
The region between 63.85 and 63.60 is a strong resistance for the rupee from a medium-term perspective.
An immediate break above 63.60 looks less probable and the upside in the rupee is expected to be capped at 63.60 over the medium term.
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