Near-term outlook positive for rupee

The Indian rupee seems to be gaining strength. Though it weakened in the initial part of last week, the currency managed to recover in the later part of the week.

The rupee fell to a low of 71.48 on Wednesday and reversed sharply higher from there, breaking above the key near-term resistance level of 79.90, and also recovering all the loss.

It made a high of 70.72 on Thursday and closed at 70.91 on Friday. Indian markets were closed on Monday on account of a public holiday.

Although the US dollar index has been inching higher, stable oil prices are helping the rupee sustain above the key support level of 71.5.

Brent Crude oil price has been stuck in a sideways range between $64 and $68 per barrel over the last two weeks. This has been giving some relief to the rupee.

Oil prices are likely to remain steady in the same range for some more time. As such, the rupee is also likely to trade stable in the short term.

Watch FPIs

Foreign Portfolio Investors (FPIs) seem to be increasing their pace of selling. They sold $1.04 billion in the debt segment in the past week.

Though it did not impact the rupee much last week, FPI action in the coming days will need a close watch. If they continue to sell Indian debt, and if the pace of selling increases further, the rupee may come under pressure.

In such a scenario, the strength in the rupee could be limited.

The US dollar index bounced from its low of around 95.82 in the past week. It is currently trading at 96.40, and the near-term outlook is positive.

The index is likely to move up to 97 and 97.5 in the coming days. The European Central Bank (ECB) meeting on Thursday, and the US jobs data on Friday, are the key events that can influence the dollar movement.

Rupee outlook

The rupee has been getting strong support around 71.5 over the last two weeks. This, coupled with the price action over the last couple of weeks, leaves the bias bullish on the chart.

The key 200-day moving average resistance is at 70.68, which is holding well as of now.

However, as long as the rupee trades above 71, there is possibility of a breach of 70.68. Such a break can take the rupee initially higher to 70.5.

A further break above 70.5 will then increase the likelihood of the rupee appreciating towards 70 against the dollar thereafter.

The rupee will come under renewed pressure only if it breaks below 71.5 decisively. The next targets are 72 and 72.50. But such a strong fall breaking below 71.5 looks less probable at the moment.

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