Rupee, gold: What to watch for

Dollar vs Rupee

With the USD/INR (US dollar/Indian rupee) having traded in a range of 46.18-46.54 for the week, volatility is low. However, volatility is expected to increase next week.

Till such time, 46.49/54 should prove to be strong areas of dollar supply. That could change however with the current state of crude prices, calling for RBI intervention.

On the downside, however, 46.24 is the level to watch for. Rupee appreciation will gain strength if this level is breached.

Technically, a break of this level will see support levels of 45.75/85 coming into play, where reasonable dollar demand is expected.

Today, however, trade will be focused on July Non-farm payrolls report in the US. This would determine the near term direction and the perception of US sustaining the economic recovery.

This and the price of crude will be watched closely for next week's direction.

Euro vs Rupee

EUR/INR continues to be under pressure. The accompanying chart clearly depicts a shift in near term trend. Our previous reports had called for selling EUR/INR at 57.17and 56.41. We now recommend importers to hedge partly between 55.40 and 54.10 where Euro demand is expected to kick in.

Medium term, the technical picture is quite bearish with the build up of a 'head and shoulders' pattern. The implications of this pattern have its genesis in the fundamental downdraft of the EUR against USD itself.

Technical studies point to an immediate downward target of 53.10 over the next few weeks. This is potentially the last straw. Should this level fail to hold, it would bring about substantial EUR supply taking INR to 48.10 and even possibly 46.56.

With the EUR also buffeted due to US recovery concerns, any positive sentiment for the USD will accentuate Euro supply.

British Pound vs Rupee

There is strong resistance on the GBP/INR cross at 84.56 on the weekly time frame and 86.50 on the daily time frame. With today being the weekly close, the classic 'double top' (twin peaks) seen in the accompanying chart could provide strong cues for sterling supplies in the region of 84.60/84.50.

Further weakness is seen if GBPINR breaches the key 84.32 level for the day. In the currency markets if the participants move the prices below this level, it could propel the cross toward our expected 83.22 target.

However in the medium term, GBP/INR, could slide all the way down to 82.10, where it will find support on the long-term rising trend line seen in the accompanying chart.

Gold outlook

Gold has been in a sustained bull run since May 2001. This is now under serious threat. The accompanying weekly chart of gold depicts a potentially bearish outlook.

The 30-week average is on the verge of falling below the 50 week average, which in technical parlance is potentially a bad sign for gold bulls.

If the price of gold falls below 387 at the end of the week in New York dealing rooms, it could infuse supplies and force the medium term bulls to liquidate their positions. This could move the prices to 360/355 levels in the futures markets, where prices could see some firmness.

For today and the rest of the week, any strength should be seen as an opportunity to sell, and wait till prices reach 387 levels, whilst medium term traders may consider initiating short positions for a profit objective of 360/355.

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