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The rupee (INR), on Tuesday, appreciated by 0.15 per cent and ended at 76.58 against the dollar. However, the risk off sentiment is keeping participants away from riskier emerging market currencies and consequently, the rupee is weak. Year-to-date it has lost 3 per cent against USD.
Fundamental factors like strengthening dollar on the back of expected steeper rate hike by the US Federal Reserve, continuing geo-political uncertainties and foreign outflows are weighing on the Indian currency. Although, the crude oil prices have cooled down, helping the local unit to some extent with respect to magnitude of fall.
The dollar continues to rally as we can see that the dollar index (DXY) has breezed past 100-mark last week and is now hovering around 102. On the other hand, the latest NSDL (National Securities Depository Limited) data show that the net outflow by the FPI (foreign portfolio investors) in April stands at $2.8 billion. So, as things stand, fundamentals are not in favour of the rupee. But technicals provide some hope.
Charts
The rupee, which saw a minor recovery towards the end of last week, faced resistance at 76. It then declined and on Tuesday, it closed at 76.58. while the nearest support is at 76.70, it is a minor one. So, INR ill most likely slip below this level and touch 77 in the short-term. Alternatively, if the domestic currency recovers, it can face hurdles at 76 and 75.60. But the prevailing price action hints at a fall to 77 and then a recovery towards 76 or possibly to 75.60.
The dollar index is very bullish. Currently trading near 102, it has a resistance at 102.50 from where there will most likely be a corrective decline. In this case, it could retest the 100-mark. This could coincide with the rupee hitting 77 level. Post which the dollar index might decline helping the rupee to appreciate. But if 102.50 is breached, the next stop could be at 103 or even 103.60.
Outlook
Fundamental factors continues to be challenging for the rupee. However, technically, charts indicate that the downside could be limited from here i.e., rupee depreciating below 77 might not happen, at least in the near-term. A recovery after hitting 77 might lift INR to 75.60.
Last week, we suggested traders to go short on rupee at 76.50 and 76 with stop-loss at 75.60 and exit at 77. Continue to retain this trade. But fresh trades are not advisable at current level.
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