The rupee was flat on Tuesday and it ended at 82.05 against the dollar. But over the past week, it has appreciated 0.4 per cent versus the greenback.

Supporting the domestic currency, the foreign flows have been very strong. According to the NSDL (National Securities Depository Limited) data, in the last week, the net FPI (foreign portfolio investments) inflows have been at nearly $1.4 billion. Also, the dollar witnessed a sharp fall following the US inflation data release last week..

As the Indian equity market is hitting new highs, more capital inflows can be expected going ahead. Moreover, the dollar remains weak. So, going ahead, the rupee is likely to remain bullish.

The above being said, the chart shows that the rupee faces a barrier now, which can weaken the upward momentum. Below is an analysis.

Chart

After taking support at 82.80 in early July, the rupee saw a sharp upside movement. But currently trading at 82.05, it faces a trendline resistance at 82. Moreover, 81.85 is another hurdle. So, with the help of the current momentum, rupee should break out of these levels, in which case it can appreciate to 81 in the coming weeks.

However, if the rupee bulls give up at the current level, sellers could come in on the back of the resistance band of 81.85-82. Consequently, the local curreny might decline to 82.30 or to 82.50.

That said, the dollar index (DXY) fell below a critical support at 101 and thus, the outlook remains bearish. It will most probably extend the downside to 99 or even to 97 in the short run. For DXY to turn bullish, it should crossover the hurdle at 101.

Outlook

Although the dollar is weak and fund flows are positive, the rupee is now facing a technical resistance. Yet, the chance for a breakout looks high. In such a case, we can see rupee appreciating sharply to 81 in the near-term. That said, at this juncture, the resistance at 81.85 holds the key.

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