Currency Call. Rupee wins a reprieve

The Greek saga kept the global currency market and the Indian rupee on tenterhooks the whole of last week.

By the time the Indian market opens we may have greater clarity on the fate of Greece.

A key factor to watch is the upcoming referendum announced by Greek Prime Minister Alexis Tsipras where its citizens will vote on whether the country should accept the bailout package put forward by creditors. This is scheduled for July 5 and may hold sway over global currency markets through the week.

However, the global currency market has so far remained resilient to the Greece crisis. If the outcome of the referendum turns out to be benign, the focus could turn back again to the US.

In the domestic market, the rupee was stuck in a narrow range of 63.46 and 63.71 all through last week. The currency opened at 63.49 on Monday and stayed in a tight range before closing at 63.64 on Friday.

There were no major economic data releases to influence the rupee. While Greece could continue to dominate the first half of this week, focus could shift away from it in the latter part when other market-influencing economic data releases from both India and overseas trickle in.

This will start with India’s fiscal deficit data on Tuesday, followed by the HSBC’s Manufacturing Purchasing Managers’ Index (PMI) data on Wednesday.

The world’s much-watched US unemployment rate and non-farm payroll numbers will be released on Thursday.

This data is being released a day ahead this month as the US markets are closed for an alternate holiday on Friday as US Independence Day (July 4) falls on Saturday. Among the various numbers that would be released on Thursday, the average hourly earnings of employees will need a close watch.

Any sign of employee earnings picking up would ease the Federal Reserve’s concerns, which would be good for the dollar. The rupee, in such a scenario, would lose ground and could come under pressure.

Strong housing numbers from the US helped the dollar index (95.4) surge from a low of 93.8 to 95.65 in the first two days of last week. However, the index was stuck in a narrow range between 94.90 and 95.65 thereafter.

US existing home sales surged 5.1 per cent (month-on-month) while new homes sales were up 2.25 per cent.

The US Federal Reserve had expressed concern on the housing market during its policy meeting earlier this month. Last week’s strong housing numbers could bring relief. If the employment numbers also turn out to be good, it could add strength to the dollar.

The immediate outlook for the dollar index is not very clear. It could gyrate within a range between 93 and 96 for some time. A breakout on either side of 93-96 will then decide the next leg of move for the index.

Among the major currencies, outlook for the euro and the pound are mixed. The Japanese yen is signalling weakness after having strengthened for two consecutive weeks. The yen is reversing lower again after testing its key resistance at 122.40.

This has increased the danger of it falling to 127.50 or even 130 in the coming weeks. A weak yen suggests that the downside could be limited for the dollar index in the coming days.

The muted movements last week have left the immediate outlook unclear for the rupee. There is equal chance of moving either to 63.9-64 or to 63.30 and 63.0 from current levels.

However, with a bullish triangle breakout on the charts and support in the 63.90-64 region, the short-term outlook is bullish. The rupee would come back under pressure only on a strong break below 64.

Until then there is no immediate danger of weakening. The rupee strengthening to 63.30 and even 63 in the coming days cannot be ruled out. However, the short-term strength is expected to be limited to 63 as this is a strong trendline resistance.

In the medium term, 64.30 is a key level to watch. A break below this level could trigger a fresh fall in the rupee. The Fibonacci retracement support level of 64.83 will be the next target on such a break. Key medium-term resistances for the rupee are 62.5 and 62.

COMMENT NOW