Ru­pee could re­main range-bound, but with a bear­ish bias

Strong dol­lar and key re­sis­tances will limit the strength­en­ing of the ru­pee

The Hindu Business Line - - BANKING - GURUMURTHY K

The ru­pee has been stuck in a side­ways range be­tween 64.7 and 65.2 over the last two weeks. The cur­rency hov­ered around 65 in the ini­tial part of the week.

It, how­ever, got a breather from the gov­ern­ment’s bank re­cap­i­tal­i­sa­tion plan which took the In­dian bench­mark in­dices to record highs last week. As a re­sult, the ru­pee rose to a high of 64.72 on Thurs­day.

But the party was short-lived as the strong surge in the dol­lar in­dex af­ter the Euro­pean Cen­tral Bank (ECB) meet­ing played spoil­sport and dragged the ru­pee lower to 65.11 on Fri­day. How­ever, the ru­pee re­cov­ered to close at 64.85, up 0.25 per cent for the week.

Data and event watch

The com­ing week wit­ness a slew of key data re­leases and im­por­tant events. This leaves open the pos­si­bil­ity of a high level of volatil­ity in the cur­rency mar­ket this week.

In­dia’s fis­cal deficit data is due for re­lease to­day. It will be fol­lowed by the Nikkei In­dia Man­u­fac­tur­ing Pur­chas­ing Man­agers’ In­dex (PMI) data on Wed­nes­day.

On the global front, the US Fed­eral Re­serve meet is due on Wed­nes­day. While noth­ing new is awaited from the Fed, the mar­ket would be wait­ing for con­fir­ma­tion of the next rate hike in De­cem­ber.

This will be fol­lowed by Bank of Eng­land’s meet­ing on Thurs­day and the mar­ket must watch US jobs data re­lease on Fri­day.

Dol­lar surges

The dol­lar in­dex wit­nessed a strong surge last week af­ter the ECB meet­ing on Thurs­day.

The ECB, as ex­pected, an­nounced a cut in its bond pur­chases from Jan­uary 2018 un­til Septem­ber 2018.

It also in­di­cated that the bond pur­chases would con­tinue beyond Septem­ber next year, if needed.

Fol­low­ing the mar­ket say­ing, “buy the ru­mour, sell the fact”, the euro ran into a sell­ing spree af­ter the ECB meet.

The euro tum­bled about 2 per cent from around 1.183 to the dol­lar and is cur­rently trad­ing at around 1.161.

This sharp fall in the euro saw the dol­lar in­dex breach and surge above its key re­sis­tance level of 94.

The sharp rise last week con­firms an in­verted head-and­shoul­der pat­tern on the chart. This is a bullish re­ver­sal pat­tern.

The neck­line sup­port of this pat­tern is at 94. Though an in­terim dip to 94 can­not be ruled out, a fall be­low this sup­port is un­likely at the mo­ment. As such, the dol­lar in­dex is all set for a rally to 96 or 96.5 in the com­ing weeks.

Such a rally in the dol­lar in­dex can keep the ru­pee un­der pres­sure and limit the up­side in the cur­rency.

Weak euro

The out­look for the euro has turned bear­ish af­ter the ECB meet­ing last week with a bear­ish re­ver­sal pat­tern on the chart. As long as it trades be­low the key re­sis­tance at 1.17, a fall to 1.13 against the dol­lar can­not be ruled out in the com­ing weeks.

This sharp rally is likely to help the ru­pee strengthen against the euro. The ru­pee has strength­ened break­ing above the key re­sis­tance level of 76.5 against the euro.

There is a strong like­li­hood of the ru­pee strength­en­ing to 74 or even 73 in the com­ing weeks.

Ru­pee out­look

The ru­pee can re­main range­bound for some more time. If the dol­lar in­dex re­treats this week, there is a pos­si­bil­ity of the ru­pee strength­en­ing within this range.

How­ever, since the over­all out­look for the dol­lar in­dex has turned bullish, the strength in the ru­pee could be lim­ited. Key re­sis­tances for the ru­pee are in the 64.65-64.60 re­gion and then be­tween 64.50 and 64.45. A strong rally break­ing above 64.45 is less prob­a­ble.

Sup­port for the ru­pee is at 65.20. An ex­pected rise to 96 and 96.5 in the dol­lar in­dex leaves the do­mes­tic cur­rency vul­ner­a­ble to break be­low 65.2 and fall to 65.5 and 66 lev­els again in the com­ing weeks.

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