Rupee may strengthen in the near term

But volatility can rise as major central bank meetings are scheduled this week

The rupee continues to trade strong amid volatility. Though the currency reversed lower after touching a high of 64.22 on Tuesday last week, the down-move was short-lived.

The rupee fell to a low of 64.60 by Thursday but managed to recoup almost all the losses,closing on a flat note for the week at 64.37 on Monday.

Week of the central banks

The coming week is packed with a series of major central bank policy meetings and key macroeconomic data releases on the domestic front.

The rupee, which has been broadly stable and range-bound between 64.22 and 64.62 over the last couple of weeks, might witness volatility on the back of the central bank meetings and the data releases.

It will begin with the US Federal Reserve meeting on Wednesday which is expected to increase rate by 25 basis points. The market has largely factored in the rate hike.

However, what the outgoing Fed Chair Janet Yellen speaks in the press conference could be of significance.

This will be followed by the European Central Bank (ECB) and the Bank of England (BoE) meetings on Thursday.

On the domestic front, the Consumer Price Index (CPI) and the Index of the Industrial Production (IIP) data are due for release on Tuesday. It will be followed by the Wholesale Price Index (WPI) inflation number on Thursday.

Dollar outlook

The dollar index surged over a per cent last week breaking above the key resistances at 93.50 and 93.65. The index tested 94 levels, but came off slightly on Monday.

Key supports between 93.65 and 93.50 and at 93.40 may limit the downside in the near term. An upward reversal from this support zone and an eventual break above 94 can boost the momentum.

It will then increase the likelihood of the index rallying to 94.5 or 95 over the short term. Such an upmove in the dollar index may limit the strength in the rupee.

Rupee outlook

The near-term outlook remains bullish for the rupee. The currency can strengthen to test the next key resistance at 64.18 well ahead of the US Federal Reserve meeting. Whether the rupee breaks this hurdle or not will determine the next move.

If the rupee manages to breach 64.18, it can gain momentum. In such a scenario, there is a strong likelihood of the currency strengthening further to 64 and even 63.85 or 63.80.

The region between 63.85 and 63.80 is a strong medium-term resistance zone which is likely to halt the rally in the rupee. An immediate break above 63.8 looks less probable at the moment.

On the other hand, if the rupee reverses lower from 64.18 in the coming days, it can weaken to 64.50 and 64.60 once again. A strong break below 64.60 can drag the rupee further lower to 64.75 and 64.90.

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