Rupee: Range-bound but vulnerable

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The Indian Rupee has been stuck in a narrow range for the past two weeks. Barring a short-term rally to 81.75 on Monday, the rupee has been oscillating between 81.85 and 82.20 for more than two weeks now. The local currency fell sharply from Monday’s high of 81.75 to close at 82.02 on Tuesday. Hence, the rupee has returned to its range between 81.85 and 8220 again.

On the one hand, strong domestic stocks and foreign money inflows are helping the rupee to maintain around 82 rupees. Foreign Portfolio Investors (FPIs) pumped about $6.85 billion into the Indian markets in the month of June. July has also started off strong. There has been a net inflow of $1.6 billion so far this month.

On the other hand, the recent rise in the dollar index and crude oil prices may keep the local currency vulnerable to a breach below 82.20 in the future.

Bullish in the near term

The dollar index and Brent crude prices look bullish in the near term. Dollar Index (103) has good chances of rising to 104-104.20 in the next two weeks. US Federal Reserve Chairman Jerome Powell recently confirmed that more interest rate hikes in upcoming meetings could support a strong dollar. The market expects the Fed to increase rates by 25 basis points at its meeting this month. The next meeting of the Federal Reserve is scheduled for July 26.

On the other hand, Brent Crude ($76.37 per barrel) could rise to $79 and even $81 in the near term. Production cuts from Saudi Arabia and Russia could help keep oil prices higher.

A rally in Oil and a strong dollar could limit the rupee’s upside in the future.

Graphs

The range 81.85-82.20 is still intact for now. However, on the charts, the local currency looks weak. The level of 81.85 is a strong resistance for the trend line. The failure to sustain a break of this resistance on Monday and an immediate reversal indicates that there is no strength in the rupee to rise above 81.85.

This leaves high chances for the rupee to break 82.20 if not immediately, but eventually in the coming days. Such a break would see the rupee weaken towards 82.50 initially. It will also increase the chances of the local currency declining again towards 83 levels in the medium term.

Rupee will get a break only if it makes a decisive close below 81.85. In this case, it can recover towards 81.60 & 81.50 in the near term.