The news of pullback of some of its troops by Russia from the Ukraine border provided some relief to the global financial market on Tuesday. The possibility of a de-escalation resulted in riskier assets rallying. That in turn aided the Indian rupee (INR) also to recover.

The Indian unit gained 0.35 per cent and ended the session at 75.3375 against the dollar (USD) on Tuesday. But this may not be enough for the rupee to completely turn the tide in its favour as the US rate hike expectations has kept the dollar high and the foreign flows have been negative so far this month.

Notably, the US 10 Year Treasury yield is now above 2 per cent. The crude oil which stays at elevated levels can also act as a drag on the rupee due to its negative correlation.

The latest NSDL (National Securities Depository Limited) data shows that the net FPI (Foreign Portfolio Investors) outflows in February so far stands at $2.3 billion.

Equities is most hit as the net outflows in this segment is at $1.7 billion. Year-to-date the total outflows is at $6.1 billion. This trend is likely to continue as the market looks a bit shaky because of the geo-political tensions. Technically, too, the picture is not rosy for the domestic currency.

Charts

The rupee by ending the session at 75.60 on Monday, closed below the supports at 75.25 and 75.50, indicating a strong bearish inclination. Nevertheless, on Tuesday, rupee appreciated and closed at about 75.34. But the rally may not sustain for long as it faces resistance at 75.25 and 75.

Moreover, the trend over the past month has been down. So, the Indian currency is likely to resume the downswing and head to 76 and then to 76.30 in the near-term. A solid break above 75 can be favourable for rupee in which case it can rally to 74.85 and 74.60.

The dollar index (DXY) closed above the hurdle at 95.75 on Monday and is now hovering around 96. Although the chart do not indicate a definite trend in place, the price action is hinting at a bullish bias. DXY can be expected to move up to the resistance band of 96.90-97. Subsequently, it could even touch 97.40. Such an upward action in the dollar will weigh on rupee from a medium-term perspective.

Outlook

The short-term outlook for the rupee now looks bearish and it is likely to decline to 76 in the short-run. A breach if this level can drag it to 76.30. But one should note that a complete de-escalation in Russia-Ukraine conflict can induce some positivity in the market which can drive the rupee higher, possibly to 74.60.

Yet, traders can initiate fresh shorts in rupee at current level and add more shorts if it appreciates to 75. Keep the stop-loss at 74.75. When it drops to 76, exit three-fourth of the shorts and revise the stop-loss to 75.40. Liquidate the remaining when it declines to 76.30.

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