The rupee has been moving in a narrow range over the past week. The currency strengthened towards 55 as Finance Minister P. Chidambaram promised accelerated policy reforms. Rally in the equity market this week and foreign institutional investors being net purchasers of stocks also helped the sentiment. Demand for dollars from importers however checked the rally. The three-month rupee-forward on the non-deliverable forward market is trading at 56 indicating a bearish bias in the outlook.
Despite both the Federal Reserve and the ECB not making any significant policy moves last week, risk aversion ebbed in the global foreign exchange market. The dollar index moved lower to 82.1. As explained earlier, the index has significant resistance around 82 and inability to move beyond this level will imply that the long-term trend remains weak for the greenback.
Dollar rupee outlook
The rupee is moving in a very narrow range between 54.7 and 56.4 since the beginning of July. That the current correction is unable to move below 56.5 denotes that the short-term uptrend that began from the June 22 low of 57.3 continues to be in force.
The third leg of this up-move can take the rupee higher to 54 or 53 over the weeks ahead. This view will be negated on a close below 56.5. For that will usher in a decline to 57.3 or below.
Short-term resistances for the rupee are at 54.2 and 54. It is quite likely that the rally halts at this juncture and the currency remains in the range between 54 and 57 for few more weeks.
But targets on move above 54 would be 53 and 51.9.
USD-INR futures : This contract achieved our short-term target of 56.5 and reversed lower from there. The contract has strong support at 55 and then at 54.7. Traders holding short positions should watch for sudden reversal from these levels.
The contract will face short-term resistances at 56.5, 56.8 and then 57.2.
EUR-INR futures: The euro-rupee futures is in a short-term uptrend since the July 16 low of 67.1. The contract however faces strong resistance at 68.9. Traders with short-term perspective can go short with stop at 69. The contract can slide to 68.3 or 68 in the days ahead.
Resistances will be at 68.75, 68.86 and 69.