A breach of the hurdle at 77.50 can lift it to 77 quickly
On Tuesday, the rupee depreciated marginally to close at 77.59 against the dollar. With that, the year-to-date loss stands at nearly 4.4 per cent. Despite the dollar cooling of late, the rupee did not appreciate and it remained one of the weakest Asian currencies over the past week.
Weighing on the local unit is the FPI (Foreign Portfolio Investors) pull out as the net selling by FPIs in May stands at $4.2 billion. The other factor weighing on the rupee is the crude price which refuses to cool down – the Brent futures is currently hovering above $110 a barrel. In fact, the falling dollar is now helping prices stay at elevated levels. Nevertheless, the Reserve Bank of India seem to sit at the other end preventing a sharp decline. As long as the RBI and FPIs at the opposite end stand firm, the domestic currency might stay flat. Technically too, we can observe some sort of consolidation over the past few days.
Over the past week, the rupee has been fluctuating in the range of 77.50–77.80. So, even though the prior trend has been bearish, the current consolidation means that the rupee should breach either of these levels to confirm the next leg of trend. A breach of 77.50 can lift the Indian currency to 77 whereas a break below 77.80 can drag it to 78, another support. Below 78, it can drop to 78.30.
That said, the dollar has been falling for over the past week. On Monday, the dollar index (DXY) slipped below the key support of 102.50 and is currently trading just above 102. It is likely to fall towards the nearest support at 101 where a rising trendline meets. From this level, there could be a recovery. And note that as long as DXY is above 100, bulls will have a tight grip.
Fundamentally, the rupee is expected to stay in a tight range, probably between 77.50 and 77.80. But then, the chart of dollar index hints at further fall which leaves room for the domestic currency to gain against the greenback. Given this, participants with higher risk appetite can consider initiating short-term rupee longs. That is, buy rupee at the current level of 77.60 and add more longs when it drops to 77.80. Place stop-loss at 78. Exit the longs when the rupee appreciates to 77.