The Indian rupee continued to trade weak against the US dollar last week as expected. The currency extended its fall and closed in the red for the third consecutive week.

The rupee decisively broke below the psychological level of 71. It made a low of 71.53 on Monday and recovered from there to close at 71.28, down 0.5 per cent for the week.

The US dollar index reversing higher in the past week weighed on the rupee. The index snapped its four-week fall and rose 0.7 per cent . The upward reversal in the past week has eased the downside pressure. The level of 96 will now act as a strong support. As long as the index remains above 96, the current upmove can extend towards 97 and 97.20 in the near term. Such an upmove in the dollar index can drag the rupee lower towards 72 in the coming days.

Crude oil prices continue to rise. WTI Crude Oil prices have been witnessing a strong rally over the last three weeks. WTI Crude Oil prices surged 4.7 per cent last week to test $54 per barrel levels, as expected. Oil prices have skyrocketed 20 per cent over the last three weeks from around $45.

Strong support is in the $53-$52 region, which is likely to limit the downside. Prices can move higher towards $55 and $55.3 in the near term. A strong break above $55.3 will increase the likelihood of the upmove extending towards $57 and $58 over the short term. As a result, the rupee may continue to trade under pressure, and the strength in the currency is likely to be capped in the coming days.

Rupee outlook

The near-term outlook continues to remain negative for the rupee. Key supports are poised at 71.70 and then in the 71.90-72 region. A dip to test these hurdles are likely in the near term. Whether the rupee declines below 72, or recovers from there, will determine the next direction of the move.

If the rupee reverses higher from 72, a recovery towards 71 or even 70 is likely. In such a scenario, a range-bound move between 70 and 72 can be seen for some time. But if the rupee breaks decisively below 72, it can come under more pressure.

Such a break can take currency initially lower to 72.4 and 72.5. A further break below 72.5 will then increase the likelihood of the rupee revisiting 74 levels over the medium term.

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