Currency Outlook: Rupee’s Decline Continues Amidst Global Factors

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The Indian rupee declined below 83 last week as expected. The domestic currency fell to a low of 83.1625 before closing the week at 83.11. Indeed, in the offshore market, the rupee tumbled to a low of 83.44 last week when the Indian currency markets were closed for a public holiday. Rising US Treasury yields, strong dollar and weak Indian equities are all weighing on the Indian rupee.

Rupee outlook

The Indian rupee (USDINR: 83.11) is bearish. Strong resistances are at 83, 82.90 and 82.80. Immediate support is at 83.20. A consolidation between 83 and 83.20 or 82.80 and 83.20 is a possibility in the near term. However, the bias will be negative as long as the rupee stays below 82.80. As such, the chances are high for the rupee to break 83.20 eventually and fall to 83.50-83.60 in the short term.

From a medium-term perspective, the rupee looks vulnerable to decline towards 84.60-84.80 eventually, going forward.

To avoid this fall, the rupee has to rise above 82.80 first and then 82.50 subsequently. That looks possible only if the central bank intervenes.

Key resistance

The dollar index (103.38) continued to move up and tested the 103.50-104 resistance zone in line with our expectation. The index made a high of 103.68 and has come down slightly from there.

Immediate resistance is at 103.50. A break above it can take the index up to 104 initially. A further break above 104 will open the doors for the index to see 105-106 on the upside. Such a rise can keep the Indian rupee under pressure.

Support is at 102.80. The rise above 104 will get negated and the outlook will turn negative only if the index declines below 102.80.

More rise

The US 10Yr Treasury yield (4.25 per cent) rose towards 4.3 per cent as expected. It touched a high of 4.32 per cent and has come down from there.

Resistance is at 4.35 per cent. As long as the yield stays below this resistance, an intermediate dip to 4.1-4.05 per cent is possible. But thereafter a fresh rise can happen targeting 4.4-4.45 per cent on the upside.

Rupee watch

Outlook is bearish. Rupee can fall to 83.50-83.60 on a break below 83.20

Crucial support

The euro (EURUSD: 1.0873) has declined breaking below the support at 1.09.  The outlook is negative. The currency can fall to 1.08-1.0780.

This 1.08-1.0780 is a very crucial support zone for the euro. If the currency manages to bounce from this support zone, a bounce back move to 1.09-1.0950 can be seen. That would give a breather for the euro.

On the other hand, a break below 1.0780 will increase the downside pressure. Such a break can drag the euro down to 1.07 and even 1.06 in the coming weeks.

As such, the price action in the 1.08-1.0780 region will need a close watch to get a cue on the next move in the euro.