The Indian rupee seems to have lost momentum. The price action over the last couple of weeks indicates that the currency lacks fresh follow-through buying to take it decisively beyond 69.5.

After making a high of 69.24 on January 7, the rupee reversed sharply lower. The currency tumbled over 2 per cent from the high, breaking below the psychological level of 70 in the past week. On Monday, it closed at 70.93, down 1.8 per cent for the week. The rupee lost steam despite weakness in the US dollar in the past week.

The US dollar index fell sharply last week, breaking below the key support level of 96. The index fell to a low of 95 and has recovered slightly from there to the current levels of 95.55. The dollar index can remain range-bound between 95 and 96 for some time. A breakout on either side of 95 or 96 will then decide the direction of the next move. A break above 96 will ease the downside pressure, and take the index higher to 96.5 and 97. On the other hand, if the index declines decisively below 95, the downside pressure would increase. In such a scenario, the index can fall to 94.

The bias is negative on the charts. The indicators on the charts are negative, and it leaves the possibility high of the index breaking below 95 in the coming days. But whether a weak dollar index will help the rupee remains a question, as the recent reversal in oil prices seems to be weighing more on the rupee.

Crude oil prices rose in the past week. As mentioned last week, WTI Crude Oil rose to a high of $53 and has come off slightly from there. It is currently trading at $51. Support is in the $50-$49.5 region, which is likely to be tested in the near term. A bounce from this support zone will take the prices higher to $54 levels, which, in turn, may limit the upside in the rupee. Only a break below $49.5 will bring the pressure back on oil and drag the prices lower again. Such a break and fall below $49.5 looks less probable in the near term.

Rupee outlook

The rupee has failed to breach 69.5, despite several attempts over the last few weeks. The subsequent fall and a decisive close below 70.5 on Monday have turned the short-term outlook negative for the currency.

Near-term resistance is in the 70.40-70.30 region. As long as the rupee remains below this hurdle, a fall to 71.6 and 71.85 is likely in the coming weeks. It will also leave the possibility high of the currency revisiting 72 levels in the short term.

The rupee has to break above 70.30 decisively to ease the downside pressure. Such a break will then increase the likelihood of the currency strengthening towards 70 and 69.5 against the dollar.

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