The Hindu Business Line : Rupee consolidates sideways

Risk-appetite in financial markets surged higher over the past week along with equity markets that snapped back from multi-year lows. Dollar and yen weakened against other currencies as funds moved out of safe-haven currencies in to riskier assets.

Rebounding stock markets in the country and abatement of foreign institutional investor selling eased the pressure off the Indian currency and helped it strengthen to 51.2 against the dollar. Weakness in US dollar also contributed to the rupee’s strength. The dollar index traded on Intercontinental Exchange moved down to 86 from the 3-year high of 89.

One-month view

Our medium term view for the Indian currency is unaltered. The current sideways move between 51 and 52 against the dollar appears to be a halt before the next leg of the down-move unfolds to take the rupee down to 52.7 or 53.5. The next leg down can, however, mark the end of the decline that began on December 19, 2008 and can be followed by a corrective up-move to 50.5 or 50. But our medium-term view will stay negative as long as the currency trades below 50.

Five-day view

Rupee is moving sideways with a positive bias over the last couple of weeks. A flag pattern is discernable on the daily chart that implies that this move is a temporary pause in the down-trend. However, a rally above 51 will turn the short-term outlook positive and pave the way for the rally extending to 50 against the dollar.

The near-term support for the rupee is in the band between Rs 52 and Rs 52.2. If this band is penetrated, next targets are 52.5 and 53.1.

Supports – 52, 52.2, 52.5

Resistances – 51.2, 50.9, 50.6

Lokeshwarri S. K.

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