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The US Federal Reserve is set to announce its policy decision on Wednesday. Market is currently factoring in for the rate hike to begin in March. That has already been priced in the market. It will have to be seen whether the Fed hints anything on the same line in this meeting.
The rupee (INR) has been on a decline of late and notably, on Tuesday, it closed below a key level of 74.70 against the US dollar. It lost about 0.3 per cent on Tuesday and has closed at 74.78.
On the other hand, there has been significant sell-off in the Indian equities over the past week. As a result, there has been significant outflows from the domestic market.
According to National Securities Depository Limited (NSDL)data, the net foreign portfolio investors (FPI) outflow in January stands at nearly $1,5 billion as on Tuesday. Equities is the most hit as this segment has witnessed a net outflow of $2.1 billion.
Charts
The rupee is on a decline after facing resistance off the 73.90-73.75 band a couple of weeks ago. While 74.70 provided support briefly, INR has fallen below this level, opening the door for further weakness.
This means, the Indian currency will most probably hit 75 within a week. Support below this level can be spotted at 75.25. But if the local unit recovers and appreciates, it can face hurdles at 74.70 and 74.30.
The dollar index extended the rally last week and crossed over the resistance at 95.75 and is currently hovering around 96.20. Although 96.60 is the nearest barrier, the index is likely to appreciate to 97.
A breakout of this level can induce fresh leg of rally to 97.70 and 98.40. On the other hand, on the downside, it can find supports at 95.75 and at 95.
Outlook
The rupee, which fell below 74.70 on Tuesday, looks set to depreciate further from the current levels. Within a week, INR will most likely depreciate to 75. A breach of this level can drag the local currency to 75.25.
Although the bias is bearish, traders are advised to stay out of the market as the USDINR currency pair can face considerable volatility post the Fed event. So, one can wait for a clear indication before initiating fresh trades.
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