Lull in the storm?

There was some respite for foreign exchange markets over the past week as the rupee paused its steep slide against the dollar. A brief period of stability in the equity market , coupled with the Government's move to increase limit for FDI in retail, also helped salvage the sentiment.

Turbulence in global markets continued with Fitch lowering Portugal's credit rating to junk and Germany's Chancellor, Ms Angela Merkel, opposing the issue of joint euro bonds to bailout the nations in trouble. With credit rating agencies threatening to downgrade 87 European banks and most of the Euro-zone nations, the volatility is not likely to abate soon.

The dollar index continued moving higher as risk-aversion rose in global markets. It is however pausing at the previous high of 79.8. Any further rally will take the index to 80.7 or 82.6. The medium-term view for this index will, however, turn positive only on a rally above 82.6.

Dollar-rupee outlook : The down-move in the dollar-rupee pair lost steam after the pair recorded the trough at 52.7. As explained in our previous column, the area around 52 is a long-term support. This forms the floor of our long-term range between 44 and 52. The currency pair needs to breach this level (52) emphatically and sustain there for few weeks to signal a long-term break-down.

Short-term trend in the rupee is sideways. But if the rally fails to get past the 51.9 level, it will mean that decline to 52.7 or below is in the offing. Close above 51.4 is required to make the short-term trend positive. Immediate target on a break below 52.7 is 53.3 and 54.

USD-INR futures contract paused its uptrend and moved lower to 51.6 in line with our expectation. It has however been forming a contracting triangle pattern over the past week that is a continuation pattern. It implies that the contract can move on to 53 or 54 over the ensuing weeks. A close below 51.5 is needed to negate this view.

Traders can hold their long positions with stop at 51.8. Subsequent supports are at 51.77 and 51.5.

EUR-INR futures too did not make any headway and reversed lower from the peak at 71.3. Immediate support for the contract is at 69.06 and the contract is reversing higher from this level. Short-term targets are 70.4 and 71.3. Target above 71.3 is 72.6.

Supports for the week ahead will be at 69, 68.4 and 67.8.

GBP-INR futures too declined from the peak of 82.58 recorded on November 22. But the correction was very short and shallow and the contract is moving higher again. Traders can buy the contract with stop at 80.4. Short-term targets are 82.6 and then 85.

Supports below 80.4 are at 80 and 78.1.

JPY-INR futures too moved down over the past week. The contract will receive support at 65.9 and 64.4 in the days ahead. Traders can buy in declines with stop at 66.7. Upper targets are 67.8 and 68.5.