Currency Call. Rupee can remain range bound, but with a bearish bias

After trading in a narrow range for six consecutive weeks, the rupee witnessed sharp and volatile movements last week.

The currency fell suddenly and sharply to test 65 levels on Friday. However, it recovered from the low of 65.02 to close at 64.55 on Monday, down 0.8 per cent for the week.

Surprise developments in US politics last week increased risk aversion in the market, thereby beating down risky assets like the rupee.

It all began with reports stating that US President Donald Trump shared confidential information with Russia. This was followed by news that the President had tried to stop an investigation against the former National Security Adviser. These unexpected events pulled the dollar down over 2 per cent last week.

The dollar index tumbled 2.2 per cent from its high of 99.26 to a low of 97.11 in the past week. It is trying to bounce back from this low and is currently trading around 97.30. Resistances are at 97.65 and 98.

As long as it trades below 98, there is a possibility of the index falling to 96.85 or even 96.45 in the coming days. A strong break above 98 is needed for the downside pressure to ease and take the dollar index higher to 98.5 and 99 thereafter.

A high “risk-on” sentiment in the market overshadowed the impact of the strong foreign money inflow. Foreign portfolio investors (FPIs) pumped $1 billion into the debt segment over the last week.

Though the continuing inflow into the Indian market is a major supporting factor, the rupee could continue to be volatile as long as uncertainty in US politics continues.

The rupee has been struggling to breach the psychological 64 hurdle over the last seven weeks. The unexpected and a sharp fall last week towards 65 has slightly reduced the possibility of the rupee strengthening beyond 64, at least in the near term.

The rupee can trade in a sideways range between 64 and 65 for some time. A breakout on either side will then decide the next trend for the currency. On the charts, the bias is bearish to see a fall below 65. Such a fall can take the rupee lower to 65.25 initially.

Further break below 65.25 will see the rupee weakening to 65.80, 66 or even 66.20 in the short term.

A strong break above 64 is needed for the rupee to gain fresh strength. Such a break, though less probable at the moment, can take the currency higher to 63.85 initially.

A rally above 63.85 will see the rupee strengthening to 63.60 thereafter. The region between 63.85 and 63.60 is a strong medium-term resistance which is likely to cap the upside in the rupee.