The Indian rupee, which was trading stable for most of last week, suffered a jolt on Friday after risk aversion rose in the market following the missile strike on a passenger airplane in Ukraine. The currency fell to a low of 60.45 on Friday and closed at 60.29, down 0.58 per cent for the week.
Global jittersThe market will be keeping a close watch on developments in Russia and Ukraine after Malaysia Airlines flight MH17 was shot down, killing all passengers and crew. Concerns of a second corporate default in China and Portugal’s Espirito Santo International filing for creditor protection on Friday could keep the market on edge. This would be bad for the rupee. Brent crude oil prices also rose last week from a low of $105.59 per barrel to close at $107.20. Rising oil prices put pressure on the rupee.
Both consumer price index (CPI) and wholesale price index (WPI) inflation eased in June, falling to 7.31 per cent and 5.43 per cent, respectively, from 8.24 per cent and 6.01 per cent in May. However, the WPI for April was revised upward to 5.55 per cent. A surge in gold imports widened the trade deficit to $11.76 billion in June. Foreign portfolio investors (FPIs) continue to buy both debt and equity. They bought $329.85 milion and $539.85 million in each respective segment.
Risk aversion in the market pushed the dollar index (80.5) higher last week. The outlook is bullish, with supports at 80.3 and 80.0. A rise to 80.8 and 81 looks likely in the short term.
The short-term outlook for the Indian rupee is bearish following a decline and decisive close below its 100-day moving average of 60.09 last week. Immediate resistance for the currency is at 60.15, while support is at 60.55. Inability to breach 60.15 could drag the rupee lower to 60.55 in the coming week. A fall below 60.55 could see it tumble further to 60.82.
On the other hand, if the rupee fails to strengthen beyond 60.55 immediately, it could remain range-bound between 60 and 60.55 in the short term. However, the outlook could turn bullish if it appreciates above the psychological level of 60.
A bearish head-and-shoulder reversal pattern is visible on the charts, with its neckline near 60 levels. This keeps the medium-term bearish outlook intact and raises the prospect of the rupee declining to 62 levels once again in the medium term.