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The rupee was volatile within a narrow range between 64.27 and 64.46 last week and closed at 64.34 on Monday.
It surprisingly failed to gain much from the dollar weakness in the past week. The dollar was beaten down strongly and the dollar index fell over a per cent, breaking below a key support level of 94.45 to a low of 93.82. The rupee however, remained stable within the narrow band, indicating an inherent weakness in the currency.
It also leaves open the danger of the rupee falling sharply in the future when the dollar reverses its trend and starts moving higher.
Dollar beaten downThe US dollar index fell sharply as the Euro surged after the European Central Bank (ECB) meeting last week. The ECB decided to run the stimulus until December 2017. ECB President Mario Draghi also announced that the discussion on tapering would happen in autumn (September to November). The outcome of the ECB meeting saw the Euro surge over a per cent last week. The dollar, in turn, tumbled, breaking below a key support level of 94.45. It is currently trading at 93.95. The political uncertainty in the US is also adding pressure on the dollar.
The outlook continues to remain weak for the dollar index with an immediate resistance at 94.35. As long as the index trades below 94.35, a fall to 93.4 or even 93 is likely in the coming days. Further break below 93 will increase the likelihood of the index extending its fall to 92.2 thereafter. The weak outlook for the dollar may help limit the downside in the rupee.
Rupee outlookSupport for the rupee is in the 64.45-64.50 zone which is holding well as of now. As long as it sustains above 64.50, the near-term outlook will remain positive. The rupee can strengthen to 64.20 or 64.15 in the near term. Inability to break above 64.15 may see the rupee reversing lower to 64.50 levels once again. Further fall below 64.50 can drag the currency lower to 64.70 and 64.80 thereafter.
On the other hand, if the rupee breaks above 64.15 in the coming days, it can strengthen to 64 which is a crucial trend-deciding resistance level. Whether the rupee breaks above 64 or not will determine the next trend. If it breaks above 64, it can strengthen to 63.85 or 63.60 thereafter. This move could be swift as the currency has been stuck in the 64-65 range for a prolonged period of time since April.
But if the rupee reverses lower again from 64, it will keep the sideways range intact and take the currency lower to 64.5 and 65 thereafter.
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