In July 2016, when the Indian rupee was hovering around 67, we had forecast a revisit of the low of 68.85 (recorded in August 2013) and a subsequent fall to a fresh low of 69.5 and 72.2. The rupee revisited the August 2013 low of 68.85 by November 2016, but did not break below it to record fresh lows.

Instead, the currency has strengthened sharply in the last couple of months, breaking above 66, and is currently hovering around 64, the lower end of the 64-72 range we had given in our July 2016 forecast. Here we take a look at where the rupee is headed on the charts.

Technically, the recent rally breaking above 66 is very significant. This is because the rupee was range-bound between 66 and 68.85 for an extended period of time since December 2015. After moving in this range for 15 months the rupee managed to break the 66-68.85 range above 66 in March this year. The range breakout that happened after the prolonged consolidation triggered this sharp move towards 64 last month.

The rupee has crucial resistance near current levels. The first is just near current levels at 64 — the 200-week moving average. The second is at 63.85, which is the neckline resistance of the head and shoulder reversal pattern formed between October 2013 and June 2015. The third resistance is at 63.60, which is a key trend-line as well as the 50 per cent Fibonacci retracement resistance level. Though a test of these levels cannot be ruled out in the near term, whether rupee manages to surpass these crucial hurdles or not will determine the next leg of move.

Also read: The rupee is rebounding and how! It waited out a stormy 2016 with a stolid show. But come March, it broke the ‘66 to a dollar’ level. What’s driving the rally and how much can it travel?

Given the rupee has strengthened sharply in a short span of time, an immediate break below 63.85 or 63.60 is less likely. The currency may pause and reverse lower again from this resistance zone. Such a reversal can take the rupee lower to 65 or 65.25 initially. A further break below 65.25 will increase the likelihood of the fall extending to 66 thereafter. Inability to break above 66 can keep the rupee range-bound between 63.6 and 66 for some time. Only a strong fall below 66 will bring back renewed pressure on the rupee which, in turn, would increase the possibility of the rupee revisiting 68.85 levels. Such a fall below 66 will also indicate that the head and shoulder reversal pattern is still in play and a test of 69.5 – the target level of this pattern — is likely.

On the other hand, if the rupee manages to breach the crucial level of 63.6, it can strengthen to 62.5 or 62.35 thereafter.

To sum up, one can expect the rupee to remain range-bound between 63.6 and 66 in the short term and between 63.6 and 68.85 over the medium term with an overall bearish bias if the currency fails to break above 63.6 in the coming days. In case it breaks above 63.6, the rupee can trade between 62.35 and 66.

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