CURRENCY CALL. Rupee’s strength may not sustain

The rupee extended its upmove against the US dollar in the past week. A rally of over 2 per cent in the benchmark stock market indices in the past week supported the rupee.

The currency rose to a high of 67.15 on Monday against the dollar.

However, it reversed lower and shed some of the gains made during the week. It closed on a mixed note at 67.40 on Thursday, up 0.34 per cent for the week.

In the absence any fresh events in the coming week, the currency movement is largely expected to be influenced by the key economic data releases.

The coming week is packed with a series of important data releases on the domestic front.

The Index of Industrial Production (IIP) and the Consumer Price Index (CPI) numbers will be released on Tuesday.

The CPI had surged to 5.76 per cent in May from 5.4 per cent in April. A higher CPI number for June will dash the hopes of further rate cut from the Reserve Bank of India, which will be negative for the markets.

The rupee might come under pressure in such a scenario. India’s trade balance data and the Wholesale Price Index (WPI) numbers are also due for release next week.

The dollar index (96) has been stuck inside a sideways range between 95.3 and 96.7 for about two weeks now.

The 200-day moving average of around 96.5 is continuing to restrict the upside for the index, while below 96.5 the index can continue to be range-bound for some more time.

A breakout on either side of this range will then decide the next leg of move.

A break below 95.3 can drag it to 94. On the other hand, only a strong break and a decisive weekly close above 96.75 will boost the bullish momentum in the index for a fresh rally to 98 or 98.2.

The rupee has a key near-term support at 67.6. Inability to break below this support can take it higher in the near term.

There is a strong possibility of the rupee strengthening to 67 in the near term, as long as it trades above 67.6.

A move between 67 and 67.6 is likely in such a scenario. If the rupee manages to break above 67, it can strengthen further to 66.8.

The presence of the important 200-day moving average resistance at 66.79 can cap the upside in the short term. The rupee is less likely to breach this key short-term hurdle.

On the other hand, if the currency declines below the immediate resistance at 67.6, it can fall to 68 and 68.2 in the short term.

A strong close below 68 will increase the danger of the rupee revisiting the previous low of 68.85 recorded in August 2013.

It will also keep the medium term bearish outlook intact. The region between 67 and 66 is a strong medium-term resistance zone.

There is a strong likelihood of the rupee falling to fresh lows over the medium term as long as it trades below this resistance zone.