Rupee loses momentum

Sell-off in equities on geo-political tensions halts the 4-week rally in the currency

The resistance at 63.60 has held very well and the rupee had reversed lower breaking below 64 in the past week as expected. The increasing geo-political tensions between the US and North Korea triggered a sell-off in the equity markets and dragged the emerging market currencies lower last week. The rupee made a high of 63.62 on Tuesday and reversed sharply lower from there to record a low of 64.27 on Friday. The currency has closed at 64.12 on Monday, down 0.5 per cent for the week.

The US President Donald Trump indicating that more provocation from North Korea may lead to a military attack turned the global markets nervous. As a result, the four-week rally in the rupee halted and the currency lost momentum. With only two trading days left (Wednesday and Friday) for the week, the rupee may continue to get influenced more by the global events. The currency market is closed today and Thursday on account of public holidays.

Dollar outlook

The dollar index faced resistance near 94 and has come-off in the later part of last week to test 93 on Friday. The US inflation numbers that failed to meet the market expectation also weighed on the index.

However, the index has managed to sustain above 93 and is trying to bounce back. It is currently trading at 93.25. As long as it trades above 93, the possibility of the index breaking above 94 will remain high. Resistance is in the 94-94.20 zone. A strong break above 94.20 can take the index further higher to 95. On the other hand, if the dollar index declines below 93, it can fall to 92.7 or 92.5 in the near-term. A break below 92.5 can drag the index lower to 92 or even lower thereafter.

Rupee outlook

The Fibonacci retracement resistance at 63.60 has held well for the second consecutive week. This makes last week’s downward reversal very significant. Immediate resistances are at 64 and then in the 63.90-63.85 region. Support is between 64.25 and 64.30. With just two trading days left for the week, the rupee can remain range bound between 63.85 and 64.30 in the near-term. A breakout on either side of this range will decide the next move.

Inability to sustain the break above 64 on Monday and an immediate reversal from 63.94 leaves the bias bearish. It keeps the possibility high of the rupee falling below 64.30 in the coming days. Such a fall can see the rupee weakening to 64.50 and 64.70 in the short-term.

On the other hand, if rupee manages to break above 63.85, which looks less probable at the moment, it can revisit 63.60.

However, the currency can regain momentum only if it surpasses this crucial resistance at 63.60. The next targets are 63.35 and 63.

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