Will Rupee break the band?

The Indian rupee marginally weakened on Thursday , last trading session of august month, ahead of key indicators including economic growth data due on Friday, retreating against the dollar for a third consecutive month due to a flare-up of global geopolitical risk events. Although foreign investors have remained buyers of Indian shares and bonds through the year, some concerns are emerging about whether the trend can continue, especially since they have now almost reached their purchasing limit in debt markets. India GDP released on Friday came in at 5.7% beating the market expectation of 5.5% to induce further confidence in the Indian economic system.

The dollar index which tracks the strength of the greenback against six major currencies rebounded to a fresh one year high after robust economic data in the US amid speculation over further easing by the European Central Bank.  US GDP growth came in at 4.2% in the second quarter much ahead of expectations 3.9% after contracting 2.1% a quarter earlier. Dollar index traded at 82.88, its highest since Sep 2 last year.

The partially convertible rupee closed weaker at 60.4950/5050 per dollar versus Wednesday’s 60.45/46 close. For the week, the rupee weakened only marginally, last Friday’s close was 60.4650/4750, snapping a three-week rising trend. The rupee edged higher by 0.08 percent in August, snapping a two-month falling trend.

Markets will also focus closely on any global risk factors, especially the European Central Bank’s policy meeting on Sept. 4 that could result in additional monetary easing. Accommodative policies from global central banks have led to a surge of inflows into emerging markets, with foreign investors buying a net $16.8 billion in debt and $12.95 billion in equities so far in 2014.

 

Technical Outlook:
USDINR has been trading very conservative in the range of 58.60-61.40 marking no major breakout so far. Major support has been seen at 58.98 and resistance at 60.87. Rupee will continue to trade in tight range of 59.70-61.70 for month ahead. If USDINR breaches 61.20 and continues to trade above near term resistance then it can further test the level of 62.70. Fall below 59.75 could further open levels of 58.95, which also is near term support.

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