CURRENCY CALL: Rupee is losing steam

The rupee has inched lower over the last one week within its broad 64-65 sideways range.

After hovering around 64.50 in the early part of last week, the rupee fell to a low of 64.84 on Friday. Though it recovered slightly from this low initially on Monday, it lost steam during the latter part of the day and fell to a low of 64.90 before closing at 64.87, down 0.6 per cent for the week.

The rupee failed to take support even as the US dollar fell sharply last week.

The dollar index witnessed a steep fall last week as the euro gained strength after the European Central Bank (ECB) President Mario Draghi hinted at beginning the winding-up of its stimulus.

This saw the dollar index tumbling over 1.6 per cent last week. The fall also took the index below a key support level of 96.45 which was holding well for more than a month.

The dollar index fell to a low of 95.53 last week.

However, the index reversed higher on Monday and is currently trading at 95.95. If the index manages to breach above 96 decisively, it can rise to 96.5 once again. Such a rise in the dollar index can limit the upside in the rupee and keep it under pressure.

But if the dollar index fails to break above 96 decisively, it can fall back to 95.50. Further break below 95.5 can see the index weakening to 95.3 and 95 thereafter.

The US non-farm payroll and the unemployment data are due for release on Friday. A strong jobs number will once again trigger talks around the next rate hike from the US Federal Reserve. This in turn can boost the dollar index and take it higher.

The rupee has been facing strong resistance at 64.4 and has struggled to breach above this hurdle over the last couple of weeks. The currency can gain strength only if it breaks above 64.4, upon which it can move higher to 64 levels once again.

But the sharp fall last week has lowered the possibility of the rupee breaking above 64.4 in the near-term. As such the near-term outlook is negative. Immediate support is at 64.90.

Further break below this support can take it lower to 65.05 — a key short-term support. If the rupee manages to reverse higher from around 65, it can strengthen to 64.7 thereafter. In such a scenario, the broader 64-65 range will remain intact.

But if the rupee breaks below 65.05 decisively, the possibility of which looks high on the chart, it will pave way for a fresh fall to 65.5 or even 66 in the coming weeks.

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