The rupee declined below 46 against the dollar as sell-off in the equity market and foreign institutions pulling funds out of the secondary market impacted sentiments. But stability returned in the financial markets after the Federal Reserve Chairman, Dr Ben Bernanke, assured investors that FOMC was “prepared to employ its tools as appropriate to promote a stronger economic recovery.”
One-month forward in the non-deliverable forwards market is trading at 46.2 while the three-month forward is trading at 46.5, indicating a bearish bias in the currency.
The dollar corrected against major currencies on Monday once it became obvious that further quantitative easing was not likely in immediate future. Mood in Europe also took a turn for the better as the two Greek banks, Eurobank Ergasias and Alpha Bank, announced a merger.
The dollar index however continues to move in a narrow band between 73.5 and 74.5. Break above the upper boundary is needed to signal the commencement of a short-term uptrend. Further targets are 75.4 and 76.7.
Dollar-rupee outlook : The rupee could not move below the support zone between 46 and 46.3 indicated last week. The currency recorded the low of 46.2 on August 25 and has been volatile in the range between 45.8 and 46.2 since then.
As explained last week, this zone forms the floor of the trading range that is confining the dollar rupee pair since last October.
Medium-term view will deteriorate only on close below 46.3, paving the way for further decline to 47, 47.4 or 47.7. But it is possible that the rupee reverses higher from here to move higher to 45.2 or 44.7 in the weeks ahead. If the currency is unable to move beyond the first resistance, it will mean that the scales are tilted in favour of bears in the near term.
USD-INR futures : Recorded the peak of 46.23 on August 25 before consolidating sideways. Traders can hold their long positions with stop at 45.8. Subsequent support is at 45.6. Fresh shorts are recommended only if the contract goes on to close below this level. Downward target would then to 45.3 and 45.
Targets on a move above 46.2 are 46.5 and 46.9.
EUR-INR futures : These contracts moved to the high of 66.89 on Tuesday. But the intra-day sell-off that resulted in the contract closing at 66.4 implies that it is having trouble sustaining at higher level.
As explained before, the underlying has strong resistance at current level and traders ought to tread carefully as long as the contract trades below 67. We stay with the view that the next medium term target for this contract is 70.
The contract will receive support at 65.4 and then at 64.5 in the days ahead.
GBP-INR futures : These were unable to break past 76 over the past week and moved in a narrow range between 75.1 and 76 in this period. Short-term trend in this contract continues to be up and traders can hold it as long as it trades above 74.85. Subsequent supports are 74.5 and 74.1.
Targets on break above 76 are 76.8 and 78.
JPY-INR futures : These moved sideways with an upward over the past week. Traders can hold the stock with stop at 59.6. We stay with the medium-term targets at 61 and 66 for the contract.