The nervousness in the currency market following the outcome of the UK referendum seems to be fading. However, the uncertainty still prevails. Britain voting to leave the European Union shook the global financial market, triggering a sharp sell-off in risky assets across the globe.
The rupee opened with a huge gap-down on Friday and tumbled to a low of 68.21. However, the currency managed to recover from this low and close above the psychological 68 mark at 67.69 on Wednesday, down 0.3 per cent for the week.
In such a scenario, gold may steal the sheen from the dollar. On the other hand, strong US job numbers may push the dollar further higher.
On the domestic front, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) on Friday and the Nikkei India Services PMI data on Tuesday are the key data releases due this week.
Dollar outlook The 200-day moving average at 96.5 has halted the sharp rally witnessed in the dollar index (95.85) after the Brexit shock. The index touched a high of 96.7 and has come off from there. Inability to bounce beyond 96.5 from current levels can drag the index lower to 95.5 or even 95 in the coming week.
Key resistances are at 96.5 and 96.75. Only a strong break and a decisive weekly close above 96.75 will boost the bullish momentum in the index.
Rupee outlook The rupee has a key immediate resistance at 67.5. A test of this level is possible in the near term. Inability to break above 67.5 and subsequent reversal from there can drag the rupee lower to 68 and 68.2 once again in the coming days.
On the other hand, if the rupee manages to break above 67.5 it can strengthen to 67.3 and 67.2.
However, strong resistance at 67 can cap the upside in the rupee in the short term.
So, below 67, the medium-term view will remain negative for the rupee to revisit the previous low of 68.85 in the coming weeks.
It will also keep alive the danger of the currency falling to fresh lows over the medium term.