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Rupee rally may stall with fall against Dollar, Euro PDF Print E-mail
Written by George Albert   

Written for First Post
February 11, 2012: The Indian Rupee's (INR) recent appreciation against the US Dollar and Euro stopped and reversed this week from key levels. There is also the anticipation that rupee interest rates may begin falling putting a downward pressure on the currency.

INR appreciation stopped on February 3 on hitting resistance support levels. The Rupee which hit all time lows against the Euro on November 22, 2011 and Dollar on December 15, 2011 went into a relief rally mode. However, the Indian currency was unable to clear key levels against the Euro and Dollar, which 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 USDINR 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 February 3. Similar levels on the EURINR pair is between 62.25 and 64. The pair fell to 63.96 and rallied on February 3. 

On a fundamental level, an easing of monetary policy signaled 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 parliament approval for the austerity measures before second bailout approval, 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 yesterday 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 price can go all the way to 53. The USDINR pair closed at 49.48 on Friday.

In the case of the EURINR pair a break above the 66 level can push price 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 the equity markets. When there is real fear in the market, gold rallies and equities fall. Hence the current fall in equity markets on Friday after the renewal of the Greek crisis may just be a correction. The unfolding of the Greek drama next week will show if the bear has the strength to beat the equity markets down. 

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