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The Indian rupee was stuck in a narrow range, hovering around 64.50 levels, the whole of last week.
The currency fell initially to a low of 64.67 on Wednesday and subsequently recovered to close the week at 64.52 on Friday. The currency markets were closed on Monday. The dollar index which reversed lower in the latter part of the week, helped the rupee gain some strength.
The US dollar index (97.40) witnessed a sharp rise from around 97 to 97.87 initially last week.
However, the index failed to sustain its momentum and reversed to make a low of 97.19 on Monday. The index is bouncing back again from this low. Support is at 97. If the dollar index sustains above this support, a rise to 98 is possible once again. A strong break above 98 can trigger a fresh rise to 98.5 and 99, going forward.
On the other hand, if the dollar index declines below 97, it can fall to test the key support level of 96.45. An upward reversal from this support can keep the dollar index range-bound between 96.45 and 98 for some time.
But a strong break below 96 will increase the downside pressure. Such a break can take the index lower to 96 initially. Further break below 96 will increase the likelihood of the index extending its fall to 95 thereafter. Such a fall in the dollar index, if seen, can take the rupee higher, breaking the key hurdle level of 94.
The US GDP numbers due for release on Thursday will be an important data to watch this week. A strong growth number would be good for the dollar and can help push the dollar index higher. The price action in the last two trading days suggests that the rupee is not gaining strength to rise past the 64.50-64.40 resistance zone decisively. This leaves the possibility high of the rupee weakening to 64.70 this week. A strong break below 64.70 can drag the currency further lower to 64.9 and 65 levels thereafter.
On the other hand, the currency can gain strength only if it breaks above 64.40 decisively. Such a break can take the rupee higher to 64.30 or 64.20 initially. Further break above 64.20,will see the rupee strengthening towards 64 levels once again.
As being reiterated in this column, a breakout on either side of this 64-65 range will determine the next trend for the rupee. A strong break above 64 can take the currency higher to 63.85 and 63.60. On the other hand, if the rupee falls below 65, it can weaken to 65.5 and 66.
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