The rupee remains within the 66-67 range and is currently testing the lower end of this range. There are early warning signals from the chart of the currency heading to break 67 anytime soon and drop further. The next move after the break below 67 could be swift as there has been a prolonged sideways consolidation.
The rupee fell to a low of 67 on Wednesday and closed at 66.98, down 0.63 per cent for the week.
The dollar index (94.94) surged over a per cent from the low of 96.68 breaking above the key resistance at 94 in the past week. The data releases in the past week on the domestic front were also not very supportive for the rupee. Both the wholesale price index (WPI) and the consumer price index (CPI) inflation rose in April thereby reducing the hopes of an immediate rate cut by the RBI in June. The WPI turned positive after being in the negative territory for 17 months. The WPI rose to 0.34 per cent from minus 0.85 per cent in March and the CPI to 5.39 per cent from 4.83 per cent in the same period. The Index of Industrial Production (IIP) grew at a slower pace of 0.1 per cent in March compared a 2 per cent growth a month earlier. All the weak data releases coupled with the stronger dollar index capped the upside in the rupee and dragged it lower in the past week. Foreign portfolio investors (FPIs) selling $559 million in Indian debt during the week added fuel to the negative sentiment in the currency. If the FPI selling intensifies further, then the rupee could come under more pressure.
There is no major domestic macro economic data release scheduled this week. So, the movement in the rupee would be largely influenced by that of the dollar index.
Dollar index outlook The dollar index can move up to test the 95.20-95.35 resistance zone. A strong break above 95.35 will see the index surging to 96 in the coming days. Such a rally in the dollar index may add pressure on the Indian rupee and can drag it lower. Strong support is in between 94.50 and 94.35 and then at 94. Only a decisive fall below 94 will turn the outlook negative for the dollar index.
Rupee outlook Though the rupee continues to retain its 66-67 range, the outlook is turning bearish. Both the 200-day moving average and a strong long-term trend line resistance have halted the corrective rally in the rupee that had begun from the February low of 68.79. The price action since March reflects a rounding pattern and is suggesting a turnaround. Immediate support is at 67.10, a break below which can take the rupee lower to 67.5 immediately. Further break below 67.5 can see the rupee weakening to 68 thereafter. It will also increase the danger of the rupee revisiting 69 levels going forward.
There are strong resistances on the chart between 66.50 and 66.35. This resistance zone is likely to cap the upside in the rupee going forward. The rupee can gain strength to test 66 or higher levels only if it breaches above 66.35. But from the charts there seems to be low possibility of such a break.