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The Indian rupee has closed on a weak note ahead of the Union Budget. The domestic currency remained weak all through last week. It faced strong resistance at 81.48. Though it remained stable below 81.48, on Tuesday, the rupee fell sharply. It made a low of 82.07 before closing at 81.9250 on Tuesday.
Event watch
Two important events on Wednesday can cause volatility in the market. First is the Union Budget. Second is the US Federal Reserve meeting outcome. Market is expecting the Fed to increase the rates by 25 basis points (bps). In the economic forecast released in December, the Fed had projected for a cumulative 75-bps rate hike for this year. So, it is important to see if the Fed Chairman Jerome Powell is giving any hint on pausing or slowing down the pace of rate hikes going forward. If so, that would be negative for the dollar and in turn can aid the Indian rupee to recover.
Outlook mixed
The dollar index (102.50) has been oscillating around 102 over the last couple of weeks. The index has been stuck in between 101.5 and 103. A breakout on either side of 101.50 or 103 will determine the next direction of move.
A break below 101.5 can drag the index down to 101 initially and then to 100 and lower levels eventually. Such a move will keep the overall downtrend intact.
On the other hand, if the index breaks the range above 103, a corrective rise to 104 can be seen initially. If the index manages to rise beyond 104, the upside can extend up to 105-106.
The outcome of the Fed meeting on Wednesday can provide the possible trigger for the dollar index to break its current range on either side. So, it is a wait and watch situation.
Rupee vulnerable
The sharp fall and a weak close on Tuesday can keep the rupee under pressure. Immediate support for the rupee is at 82.15. A break below it can drag the rupee down to 82.50 and even 82.75 in the coming week.
Resistance for the rupee is at 81.50. The Indian rupee has to surpass this hurdle to ease the downside pressure. Such a break can see the rupee recovering towards 81.30-81.25 initially. A further break above 81.25 will see the rupee strengthening towards 80.80 and even higher in the coming weeks.
On the charts, the chances are looking high for the rupee to see at least 82.50 on the downside before witnessing a recovery.
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