Medium-term weak for euro-rupee

Rupee rallied to the high of 48.5 against the dollar as financial markets exulted in the agreement reached last week to restructure Greek debt and bolster the Euro zone bail-out fund. Dollar plummeted against major currencies even as Euro surged along with equity markets.

But the Pandora's box of worries was opened again this week with Greece announcing a referendum before accepting the bail-out proposal. Policy rate cut in Australia, MF Global filing for bankruptcy and slowdown in Chinese manufacturing numbers were other factors that sent risk aversion soaring.

Dollar index declined to 74.8 last week but return of turbulence took the index higher to 77.2 on Tuesday. The index has psychological support around 75 from where it is rebounding. Key level to watch in the days ahead is at 78.2. Reversal from here will result in the index moving lower towards 75 again.

Dollar-rupee outlook: This pair moved in line with our expectation, rallying to the high of 48.6 and then reversing down to 49.3. That the rupee could not move past this hurdle denotes that the medium-term view for this pair stays negative. It can attempt to move lower to 51 or even 52. Key medium-term resistance is at 48 and the rupee needs to rally above this level to signal that the medium-term view is turning positive.

In the short-term, the rupee will get support at 49.7 and then at 50.3. If the currency manages to hold above 49.7, it will denote short-term strength and the propensity to strengthen towards 48.6 again.

USD-INR futures: Achieved our short-term target at 48.8 before reversing higher on Tuesday. Next resistance for the contract is at 49.8. Traders should book profit on their long positions if the currency fails to move beyond this level. Next target is 50.4.

Supports for the upcoming sessions would be at 48.8 and 48.5.

Euro-rupee Outlook

Rupee has been steadily depreciating against the Euro since last May, losing 22 per cent since then. The decline in 2011 is 13 per cent. The long-term trend for this pair is down and so in the medium-term trend. Rupee could continue to decline to the low of 71.4 recorded in September 2009.

Some respite is however possible once the pair reaches here and it can then consolidate in the zone between 65 and 71 for couple of months. The pair needs to rally beyond 65 to signal that the medium-term view is reversing. The pair was in a short-term uptrend since October 28. But this move has to go above 67 for it to be taken seriously.

EUR-INR futures: Could not get past 69.7 and reversed down from Friday's peak of 69.6. The contract has support at 68, where it is currently hovering. Breach of this level will pull the contract to 67.4 and 66.9. Traders can initiate fresh shorts on decline below 67.7.

Short-term resistances will be at 68.4 and 68.9.