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Rupee Could Remain Under Pressure

Monday, July 30, 2012

The Indian Rupee (INR) witnessed a weaker start for the week, which it carried till mid week. After which, it continued to pare loses and gained sharply towards the ending of the week at around the same levels from where it started.

In the absence of the market wide expected policy reforms and a stronger commitment over proposed reforms, the global market cues continued to dominate the INR movement in the last week. A weaker than expected India Inc earnings and the postponing of the policy reforms decision from the presidential election to the vice president election and probably into the monsoon session weighed on INR along with rising debt costs of Spain and Italy which soared to its highest levels.

The upcoming RBI credit policy review on Tuesday shall be in focus where only a small section expects for at least at 25bps rate cut. A surprise cut will be positive for the INR also the Q1 GDP numbers shall set the tone for INR.

The Indian political scenario is bracing itself towards the vice presidential election followed by the monsoon session. The rise in the price of Brent crude above the $100 mark is matter of concern for the Indian economy. With the government postponing the diesel price hike and other measures to cut the oil subsidy the fiscal situation is expected to deteriorate further dampening the growth prospects creating pressure on INR. A drought like situation is likely to emerge due to the untimely advancing of rains affecting the growth of the standing crops thereby weighing on the expected growth numbers.

For the week importers can wait for the INR to appreciate around Rs 54.50 to Rs 54.00 levels for partial hedging for their payments which we expect to be achieved on a move below Rs 55.20 levels. A complete long hedge can be created around Rs 53.00 levels. Exporters can use the weakness towards Rs 55.90 levels to initiate a short hedge with a stop loss above Rs 56.50 levels as to cover their receipts. The crucial levels for INR appreciation are Rs 55.20 levels as a move below the same shall extend gains and for depreciation the Rs 56.50 levels can be closely watched as rise above Rs 56.00 levels shall weaken the pair till Rs 56.40 levels.

Technical Take on USDINR
A Doji pattern of candle sticks has formed which is a sign of reversal in prices. The price continues to form a Flag pattern of the rising pole and a decisive move above the trend line resistance shall be positive for the prices till then a move below the rising trend line support of the pennant and a broadening wedge shall be negative for the prices.

The chart formation suggests of extension of downside moves on the break of Rs 55.20 levels to Rs 54.60 – Rs 54.20 levels. A rise towards Rs 55.80 can be used as selling opportunity with a stop loss above Rs 56.40 targeting Rs 54.80 – Rs 54.40 levels.

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