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Strength in dollar, weak equity markets and month-end demand from oil importers kept rupee subdued against the dollar over the past week. There was a weak rally prior to the announcement of the Monetary Policy review statement on Tuesday morning. But this move halted at 48.7 when the policy rates were left unchanged and the currency is back near 49 again.

Dollar weakened slightly as rally in stock prices restored confidence among investors and caused money to flow out of dollar denominated assets to other riskier markets. US dollar index traded on Intercontinental Exchange is retreating after recording a peak at 87.4. However, the view for dollar will stay positive as long as this index holds above 84.

Rupee has been forming a congestion zone since the beginning of this year. The pattern formed by this zone is a descending triangle that has negative connotations. The base line of this triangle is at 49.2. A close below this support is required to take the currency towards 49.8 or 50.6.

Short term resistances would be at 48 and then 47.5. We maintain a negative short term view as long as the currency trades below 48.

As explained above a down-move that drags the rupee towards Rs 50 again, appears imminent in the medium term. But the currency unit has been moving in a wide range between 50.5 and 46.5 since late October 2008. This range can continue to shackle the Indian currency unit for a few more months before a break-out.

The medium term view will turn positive only on a rally above 46.4.

Supports – 49.2, 49.9 50.9

Resistances – 48.2, 47.5, 46.4

Lokeshwarri S. K.

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