The rupee has been hovering around 65 over the last few weeks, and stuck in a sideways range of 64.70-65.30 for about a month now.
Within this range, the rupee hit a high of 64.72 and reversed sharply lower from there to a low of 65.29 on Wednesday last week. The currency recovered slightly from this low and closed at 65.18 in the truncated trading week.
Dollar recovers
A strong recovery in the dollar index dragged the rupee below 65 in the past week. The downside pressure on the dollar index eased following reports that the US and China may renegotiate the tariffs imposed on Chinese exports.
This triggered a strong reversal in the dollar index and took it higher to 90.15 from 89. The index has come off slightly from this high and is currently trading at 89.90. Fresh fears are now emanating after China imposed new tariffs on, among others, meat and fruits.
If the trade war intensifies, going forward, pressure could mount on the dollar again.
Support for the dollar index is at 89.70.
A break below it will increase the likelihood of it falling towards 89 again. Further break below 89 will drag the index lower to 88.50.
On the other hand, if the dollar index manages to sustain above 89.7, it can move up to test the crucial resistance level of 90.50. A strong break above this hurdle will boost the momentum and take the index higher to 91.2 or even 91.5 thereafter.
An eventful week
As the global markets will be watching the developments in the US-China trade war, other key events that are scheduled for this week could also keep the currency market volatile.
The Reserve Bank of India’s monetary policy meeting is scheduled on Thursday.
The RBI is expected to keep the rates unchanged in this meeting.
On the global front, the US unemployment rate and the non-farm payroll numbers are due for release on Friday. A strong jobs number accompanied by a pick-up in employee wages could boost the dollar.
Rupee outlook
The Indian currency market has been closed since Thursday last week on account of a long holiday weekend. As such, a wide gap on opening is guaranteed on Tuesday as the markets reopen after a five-day holiday.
If the trade war intensifies in the coming days and the dollar weakens, the rupee can sustain above 65.3.
In such a scenario, the 64.7-65.3 sideways range will remain intact and the currency can strengthen towards 65 and 64.8 again in the short term.
If the rupee manages to breach 64.7, the upmove can extend towards 64.4 or even 64.3 thereafter.
The currency will come under pressure only if it declines below 65.30 decisively. Such a break will take the currency lower to 65.60 initially. Further break below 65.6 will see the rupee weakening towards 66 thereafter.
On the charts, the bias is bearish and the possibilityof a break from the current sideways range, below 65.30, remains strong.