Rupee continued its upward march against the greenback. It breached the 51 mark backed by strong portfolio flows from foreign investors. They have pumped in $543 million in equity and so far this year. Inflows in to debt equal $2.8 billion.
In a lighter vein, according to the Big Mac Index compiled by the Economist, Indian rupee is the most undervalued currency in the world. Swiss franc is the most overvalued according to this gauge.
Standard and Poor downgrading nine European Nations including France and Austria has not affected foreign exchange markets too badly. The Euro hit the low of 1.26 against the dollar on Friday but rebounded again this week. Data showing that Chinese GDP grew faster than expected in the fourth quarter also buoyed the mood across Asia.
Dollar index withdrew slightly after recording the high of 81.7. We stay with the view that key medium-term resistance for this index is at 82.6 while critical support is at 78.8.
Dollar-rupee outlook
Rupee penetrated the 51 level to record the high at 50.8 on Tuesday. As mentioned last week, the currency has resistances at 51.1 and 50.3. Market participants should watch the zone around 50 carefully since it is important from retracement as well as from a psychological perspective.
Since this level (50) occurs at 38.2 per cent retracement of the move from 43.8 to 54.3, if the currency halts below this level it is will imply that bears continue to hold the upper hand. Sideways move between 50.3 and 54.3 is then likely over the ensuing months.
Move above 50.3 will however mean that the currency can proceed to 49 or 47.8 in the upcoming months. As explained last week, strong move above 50 will shift the trading range for the year to 40 and 50.
For the week ahead, traders should watch out for rebound from 50.3 or 50. Close above this level will make the medium-term view positive.
USD-INR futures contract declined below our first target to 51. The contract can now move towards our second target at 50.4. There are multiple supports at this level that can cause the contract to halt here. Traders can book profits on their short positions if this level is not crossed.
Short-term resistances would be at 52.3, 52.7 and 58.1.