The Indian rupee has managed to recover in the past week in line with our expectations.
The corrective rise to 82.60 has happened as expected and rose beyond 82.60 to make a high of 82.51 on Monday.
However, on Tuesday, it reversed back lower giving up gains made during the week. It has closed at 82.72 on Tuesday.
Debt ceiling deal
All eyes will now be on the US developments of the US debt ceiling deal, with voting on the deal is likely to take place by Wednesday.
Any deadlock or delay in passing the deal would cause volatility in the market this week. It would increase the risk aversion in the market, which in turn, would have a positive impact on the dollar. Consequently, this could keep the rupee weak throughout the week.
Dollar outlook
The dollar index (104.10) has been struggling to get a strong follow-through rise over the last few days. Important supports are at 104 and 103.80.
The index has to sustain above 103.80 and get a strong follow-through rise. That will be bullish for the dollar index to target 105 and even 106 in the short-term.
If the dollar index breaks below 103.80, a corrective fall to 103.6 initially and then to 103 is a possibility. Broadly, it is a wait and watch situation.
Supporting factors
Rally in the Indian equities, strong foreign money inflows and low crude oil prices are the factors that can aid in limiting the rupee weakness.
The Indian markets have seen a net inflow of $5.12 billion in May. The equity markets are looking strong. The benchmark indices can scale new highs in the coming weeks.
Brent crude oil, priced at $76 per barrel, has been fluctuating between $74 and $79 since the beginning of this month. On the charts, there is a negative bias indicating a potential break below $74, leading to a decline towards $70 and even lower levels.
Rupee Outlook
The Indian rupee has an important support in the 82.80-82.85 region. Resistance is at 82.50 which is holding well for now. If the rupee breaks below 82.85, it can fall to 83. However, a fall beyond 83 looks less probable as of now.
On the other hand, the domestic currency has to breach 82.50 to strengthen further. A break above 82.50 can take the rupee up to 82.30-82.20 in the near-term.
Preference will be to see the rupee in a range of 82.50-82.85 for now. Eventually, we can expect the rupee to break 82.50 and rise to 82.30-82.20.