Rupee rally may stall with fall against US dollar, euro

The Indian rupee’s recent appreciation against the US dollar and euro stopped and reversed in the week to 10 February from key levels. There is also the anticipation that rupee interest rates may begin falling, putting a downward pressure on the currency.

The rupee’s appreciation stopped on 3 February on hitting resistance levels. The currency, which hit all-time lows against the euro on 22 November 2011 and the dollar on 15 December 2011, went into a relief rally mode. However, the rupee was unable to clear key levels against both currencies. These resistance levels need to be broken through for further appreciation. The inability to break these levels can result in the rupee going bearish and retesting previous lows.

The level on the dollar-rupee pair that must be cleared for a further strengthening of the rupee is between 48.5 and 50. The pair came all the way down to 48.60 and then caught a bounce on 3 February. Similar levels on the euro-rupee pair is between 62.25 and 64. The pair fell to 63.96 and rallied on 3 February.

On a fundamental level, an easing of monetary policy signalled by the Reserve Bank of India will put a downward pressure on the rupee. Also when trading the rupee, it is better to short it against the dollar rather than the euro, given the renewed worries over Greece. With Greece being asked to get parliamentary approval for the austerity measures before approval for the second bailout, the headlines can get negative, pushing the already bearish euro further down.

The bullish dollar, on the other hand, had a healthy correction this year and has a higher potential to rally, which makes it a better option to buy on selling the rupee. Also, on Friday, the Dollar index caught a bounce from a support level of 78.50. A fall in the rupee against the dollar can take it to the 51 level and if that level is broken the price can go all the way to 53. The dollar-rupee pair closed at 49.48 on Friday.

In the case of the euro-rupee pair, a break above the 66 level can push prices all the way up to 69. The pair closed at 65.28 on Friday.

Gold: The precious metal has moved into a downtrend channel ( Click here for Gold chart ) and seems to be following the trend of the equity market. When gold and equity markets both fall, it shows that the bear has not completely taken hold of equity markets. When there is real fear in the market, gold rallies and equities fall. Hence the current fall in the equity markets on Friday after the renewal of the Greek crisis may just be a correction. The unfolding of the Greek drama in the week ahead will show if the bear has the strength to beat the equity markets down.

Copper: The metal had a strong fall last Friday, which looks good for equity bears. ( Click here for Copper chart ). The equity markets often follow copper. The S&P 500 index fell 0.69 percent, but copper fell a whopping 2.92 percent. This indicates that the equity markets may have some more to fall.

George Albert is Editor, www.capturetrends.com