24 Nov 2016 12:34 IST

Rupee heading towards fresh lows

Strong dollar and foreign money outflow keep the currency under pressure

The rupee continues to trade under pressure. As expected it fell breaking below 68 in the past week and is headed to revisit the previous low of 68.85 recorded in August 2013. The rupee fell below 68 on Friday and was range-bound between 68 and 68.27 until Tuesday. But the strong gap-down open on Wednesday increased the pressure and dragged the rupee to a low of 68.61 before closing at 68.56. The currency is down 0.9 per cent in the past week and has fallen 2.8 per cent since the US elections.

A strong surge in the dollar index, coupled with foreign portfolio investors (FPIs) pulling out money from the Indian market, has dragged the rupee below 68. The FPIs have begun a strong selling spree after the surprise victory of Donald Trump in the US Presidential election. Investors have sold $1.79 billion in equity and $1.85 billion in debt since the US election day.

Watch the dollar

The dollar index has broken its key resistance at 100.7. This has also broken the prolonged broad sideways consolidation in the index between 92 and 100.5 that was in place since January 2015, The next crucial resistance is at 101.48 which is the 61.8 per cent Fibonacci retracement resistance. If the index manages to rise past this hurdle and close this week on a stronger note above 101.5, the rally can gain further momentum. In such a scenario, the index can surge to 103 or 104 in the coming weeks. Such a rise in the dollar index can drag the Indian rupee to fresh lows.

On the other hand, if the index fails to break above 101.48 and reverses lower it can dip to 100.7. Further break below 100.7 can take it to 100. The bullish view will get negated only if the index declines below 100. The next targets will be 99 and 98.

Rupee outlook

The strong fall below 68 has brought the medium-term bearish view back into play. The previous low of 68.85 recorded in August 2013 is likely to be tested in the coming days. On the charts, the region between 68.8 and 68.85 is a crucial short-term support for the rupee. A strong break below 68.85 will see the currency declining to 69.15 and 69.30 thereafter. The rupee may see some recovery from around 69.3 levels.

On the other hand, if the rupee manages to reverse higher from the 68.80-68.85 support zone, it can strengthen to 68.5 or even higher in the near term. In such a scenario, a range-bound move between 68 and 68.85 can be seen for some time. However, the rupee can gain momentum only if it manages to climb above 68 in the coming days.

The price action on the chart since January this year reflects a triangle pattern.

The strong fall below 67.5 in the past week confirms the breakout of this pattern. The target of this pattern is 70.3 which is more likely to be hit over the medium term if the rupee continues to trade below 68.