Rupee struggles to strengthen beyond 64

After a sharp intraday fall to 64.38 on Friday, the rupee got a breather on Monday from the outcome of the elections in France over the weekend. Emmanuel Macron’s victory has now reduced the fears in the market that France will also be pushed to exit from the European Union.

However, since Macron’s victory was factored in to some extent, the market seems to be selling on the news. This is evident from the euro coming off slightly after testing 1.10 to 1.095 now. The rupee also gave back its gains after touching an intra-day high of 64.19 on Monday to close at 64.31.

The rupee is continuing to hover around 64 over the last four weeks and is not gaining momentum to breach above this psychological level. The currency may need some strong and fresh trigger to take it past this hurdle in the coming days. The coming truncated week is packed with a series of key macroeconomic data releases. The Index of Industrial Production (IIP) and the Consumer Price Index (CPI) inflation numbers will be released on Friday.

It will be followed by the Wholesale Price Index (WPI) inflation data next Monday. The trade data is also due for release this week. The currency market is closed on Wednesday.

As expected, the US Federal Reserve kept rates unchanged last week, leaving the doors open for the next hike in June. But this did not help the dollar index to strengthen. The index bounced to 99.46 after the Fed meeting but fell back sharply to a low of 98.39 by Friday. However, the pull back in the euro on Monday has helped the dollar index rebound to the current level of 98.89.

The index has strong supports at 98 and 97.5. Though a fall to test these supports cannot be ruled out in the near term, further break below 97.5 is less likely. A strong bounce-back from this support may have the potential to take the dollar index to 100 or even higher levels thereafter.

So the strength in the rupee could be limited in the near term and the possibility is high of the rupee weakening once the dollar index reverses higher in the coming days.

As the rupee continues to remain in a narrow range around 64, the outlook remains unchanged. A range-bound move between 64 and 64.8 is likely for some more time.

A breakout on either side of 64 or 64.8 will decide the next move. A break below 64.8 can take the rupee lower to 65.15 initially. Further fall below 65.15 may increase the likelihood of the rupee revisiting 66 levels.

The presence of the 200-week moving average around 64 makes it less likely that the rupee will break above this psychological level. But if the rupee manages to surpass this hurdle, it can strengthen to 63.85, which is the next key resistance that can cap the upside in the currency.

A subsequent reversal from this resistance may have the potential to drag the rupee lower to 66 levels once again over the medium term.

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