Rupee gains on the back of weak dollar

But domestic currency looks vulnerable against the euro and pound

The rupee strengthened in the past week, contrary to expectations that it would fall to 65.5.

The rupee touched a low of 65.11 last Tuesday and reversed sharply higher, breaking above the key resistances at 65 and 64.85. The currency hit a high of 64.49 on Monday and closed at 64.50, up 0.92 per cent for the week.

Weakness in the US dollar helped the rupee regain its strength in the past week. The dollar index fell sharply in the past week breaking below the key support in the 94-93.85 region.

The index has been falling over the last three weeks. It has dropped over 2 per cent in this period, and is currently trading near 92.65.

Immediate support is at 92.50. If the index manages to bounce from this support, a relief rally to 93 or 93.35 is possible in the near term. But if the dollar index extends its fall by breaking below 92.5, it can test 92 or even 91.5 in the coming days.

Such a fall in the dollar index might help the rupee from witnessing a sharp fall.

Rupee outlook

The rupee is hovering below a key resistance level of 64.45. If it manages to break above this hurdle, it can strengthen further to 64.20 or even 64 against the dollar in the coming days.

Whether the rupee manages to break above 64 thereafter or not will then decide the next leg of move.

If the rupee fails to break above 64.45 and reverses lower, it can weaken towards 65 and 65.2 levels again in the short term. However, weakness in the dollar may keep the downside limited for the rupee.

On the other hand, if the domestic currency manages to breach 64, it can strengthen to 63.80 or even higher against the greenback thereafter. But, a downward reversal from 64, will see it losing momentum. In such a scenario, the possibility of the rupee weakening to 64.3 and 64.5 levels will increase again.

Though a weak dollar may aid the rupee from a downside in the coming days, the domestic currency looks vulnerable to weaken against the other majors like the euro and the pound. The outlook for both these currencies are bullish.

The euro, trading currently at 1.1935 against the dollar, can test 1.20 in the near term.

A strong break above this level can take it further higher to 1.21 or even to 1.22 against the dollar in the coming weeks.

Such a rally in the euro may push the EUR-INR rate, which is currently at 77, higher to 78-79 or even 80 in the coming weeks.

The pound (1.3350), on the other hand, is gaining momentum against the dollar after forming a base around 1.30 for several weeks.

It can rise to 1.36 against the dollar in the short term. Such a rally is likely to drag the rupee lower to 89 or 90 against the pound. The GBP-INR pair is currently trading at around 86.

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