Rupee is already down by 7.5% from recent high of 51.35 on weak domestic cues. Rupee lost traction with gains in the Euro while weak Euro weighed heavy on the Rupee which is now seen as the most underperforming currency. Market Pulse highlighted the risk of extended weakness beyond 55.10-55.20 into 55.60-56.10. The intra-week update urged importers to cover near/short term imports on rupee correction into 54.80-54.60 and looked for RBI’s support at 55.10-55.20 and supplies from exporters to sell 12M dollar receivables at 58.05-58.20. While weekly close below 55.20 is comfort but close above 54.80 is bearish into the immediate term. It took 20 trading days for rupee gains from 56.03 to 51.35 post Government action on fuel price hike and other reforms while unwind of more than 80% of this gain has taken 27 trading days; such is the volatility in rupee exchange rate which should be a serious concern for RBI. The outlook for the week is not in favor of rupee.
The immediate focus is at 55.60 while Euro stays above 1.2650; extension into 1.2500 will bring the focus into 56.10. The greenback will find strong support at 55.10-54.80 window where importers will be seen in hurry to cover near/short term dollar payables. On the other side, there will be supplies from exporters to cover 12M dollar receivables around 58.50. It makes sense to cover 12M exports at 58-60, higher end of long term spot rupee range of 45-60. It is impossible to catch the tail or head for large amounts; hence it is prudent to phase out hedging activity. There is also added pressure on rupee from NDF market with higher demand for forward dollars in the off-shore market, squeezing the spread in 3M dollars from above 25 paisa to below 10 paisa.
Commenting on the outlook for rupee, Moses Harding, Head - ALCO and Economic & Market Research, IndusInd Bank said, ''For the week, let us watch 55.10-55.60 with extension limited to 54.80-56.10. It would need strong support from RBI to get the focus back into 54.60. Strong signals from the Parliament to support the Government on reforms will get the focus back into 53.20; short term range is seen at 53-56 at this stage.”
On Euro-US dollar pair, Moses Harding said, 'USD Index found good support above 80.85-80.70 support zone to hit the set objective at 81.35-81.50 before close of week at 81.19. In the meanwhile Euro rallied from 1.2665-1.2635 to meet set objective at 1.2790-1.2820; thereafter expected 100 pip corrections from here into 1.2710-1.2685 held at 1.2688 before close of week at 1.2745. What next? Euro is seen set at 1.2650-1.2800 range; break either-way will trigger 150 pip rally into 1.2500 or 1.2950. The bullish undertone in the USD Index and USD/JPY looking heavy at 81.50-82.00 could trigger test/break of 1.2650. On the other hand, extension of gains in USD/JPY into 84 will trigger test/break of 1.2800. While staying neutral on the break-out direction, slight bias is in favour of extended Euro gains into 1.2935-1.2950 shifting the short term focus into 1.34. The strategy is to trade end-to-end of 1.2650-1.2800 with stop/double reverse on conclusive break thereof.”
“USD/JPY traded perfect to the script; the rally from 79.15-78.90 buy zone hit the 81.45-81.70 target; expected correction from there held at 80.90-80.65 support (low of 80.87) before close of week at 81.30. USD/JPY is at mid-point of the 79-84 short term range and the bias is clearly into the higher end while 80.90-80.65 stays firm. While conclusive break above 81.45-81.60 will get the focus into 84, there is risk of sideways trading at 80.65-81.65 before moving up. The strategy is to hold “long” entered at 80.90 with stop below 80.65 for 82. We will watch price action at 81.65-82 to get firm grip on the next direction.”