Rupee nearing long-term support

Some semblance of stability was seen in global financial markets towards last weekend as ECB assured everyone that it will ensure adequate dollar availability to banks with the help of the Federal Reserve and other central banks. The rupee also appeared to be stabilising after recording a low of 48 against the dollar on September 14.

But the going deteriorated again following Standard & Poor's downgrading Italy's sovereign rating. This sent the euro crashing to 1.36 against the dollar. The dollar index moved to 77 again. The rupee breached the 48 level to record a low of 48.24 on Tuesday on strong dollar demand from importers coupled with worries on the effect of depreciating currency on India's trade deficit. The one-month rupee forwards in the NDF (Non-Deliverable Forward) market were trading at 48.3 while three-month forwards were trading at 48.7.

Dollar-rupee outlook : The rupee continued to be extremely volatile against the dollar over the past week; rallying to 47.2 on Friday only to decline to 48.24 this Tuesday. The currency pair could not halt at the support zone between 47.1 and 47.7 indicated last week and moved to the 48 mark that occurs at 50 per cent retracement of the rally from March 2009 to April 2010. Next support, if we apply Fibonacci retracement is at 49.1. The long-term view will turn negative only on a weekly close below this level.

Immediate resistance for the currency is between 47.2 and 47.3. Short-term view will turn positive if the currency manages to move above this level. Key medium-term trend decider is at 46.5. In other words, the medium-term trend will stay bearish as long as the currency trades below this level.

USD-INR futures moved in line with our expectation to move close to our second target at 48.4 on Tuesday. But the star candlestick formation on Tuesday denotes indecision and the contract can move down to 47.7 or 47.3 in the days ahead. Traders can hold their long positions with stop at 46.2. Next support is 46.8.

Short-term trend in the contract is up, though the contract can spend a few more sessions vacillating in the zone between 47.3 and 48.5. Target on a break above 48.3 is 48.5 and 48.8.

EUR-INR futures : Moved to the high of 66 before giving way on Friday. Upper targets stay at 66 and 66.9. Traders can hold their long positions with stop at 65.1. Subsequent supports are at 63.6 and 63.

GBP-INR futures : These too are moving in a range between 74.6 and 76 over the last few trading sessions. Traders can hold their long positions with stop at 74.5. If the contract manages to hold above this level, it can break higher to 76 or 76.9 in the upcoming sessions.

JPY-INR futures : These contracts continued to surge higher and reached the peak of 63.9 on Tuesday. The speed with which this contract is moving makes it possible that the contract reaches our medium-term target of 66 in the weeks ahead. Traders can hold their longs with stop at 61.7.