Global Investor

Rupee ready for short-term rally

Gurumurthy K | Updated on January 24, 2018 Published on July 12, 2015

China’s stock market rout last week has left the rupee unmoved so far



The Indian rupee was caught in a range week. The currency was stuck between 63.30 and 63.64 for the week and closed flat at 63.40 on Friday.

A combination of factors — China’s stock market sell-off and the Greece crisis — kept the rupee in a tight range.

The week began on a negative and a nervous note and the rupee opened gap-down at 63.63 as Greece voted “No” to the referendum. While the China’s stock market rout kept global financial markets uncertain, the fall in crude oil prices helped limit a sharp fall in the rupee.

Easing Greece concerns

Greek Prime Minister Alexis Tsipras proposing a bail-out package and accepting some austerity measures was a major development last week.

This averted a major sell-off in the euro, which looked likely in the beginning of the week.

The Greek parliament backing the proposal could ease the way for a deal when European Union leaders meet on Sunday. This could help the rupee gain some ground as the markets open on Monday. On the domestic front, both the Consumer Price Index (CPI) and Wholesale Price Index (WPI) inflation data are due for release this week.

The Index of Industrial Production data was released on Friday after the markets had closed. The IIP grew at a tepid 2.7 per cent in May after having risen 3.36 per cent in the previous month. Data since January shows that India’s industrial activity is not gathering the expected momentum, which has added to the clamour for rate cuts from the Reserve Bank of India.

Dollar outlook

The smart recovery in the euro (1.1162) from the low of 1.0915 played spoil-sport to the dollar index (96) last week.

The index reversed lower after recording a high of 97.23 and fell to a low of 95.45. The index could gain momentum only if it breaks above 97 decisively. As long as it trades below 97, a fall to test 95 is possible this week. A break below 95 can drag it further lower to 94 and then to 93.

The euro looks positive for a rise to 1.13 and 1.14. The currency will come under pressure only if it breaks and records a strong close below 1.10.

The next targets on such a break will be 1.08 and 1.07.

The US Federal Reserve Chair, Janet Yellen, reiterated on Friday that the time is appropriate to begin rate hikes some time later this year.

Yellen’s testimony before the Congress on Thursday will be a key event to watch for this week. This could influence the dollar’s movement and thus the rupee.

Rupee outlook

The range-bound moves last week seem to represent a temporary pause in the short-term rally. Immediate resistance is at 63.30. A break below this level can take the rupee higher to 63 this week which is the next key resistance level.

If rupee manages to break the psychological level of 63, then it can strengthen further to 62.70. However, the short-term strength could be limited to 62.70, a key trendline resistance is posied at this level. It might not be easy for the currency to breach this hurdle, at least on its first test.

Immediate supports for the rupee are at 63.50 and 63.65.

The currency will come under pressure if it falls below 63.65. Such a fall can take the rupee lower to 63.90 and 64 in the short term.

As mentioned in this column last week, rupee will come under fresh threat only on a strong break below 64.

It will then increase the danger for the rupee to decline below the key support level of 64.30 and fall to 64.83 there after.

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