Worst over for rupee? For now, technical charts say yes

Fri Sep 6, 2013 5:46am EDT
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By Krishna Kumar and Savio Shetty

MUMBAI (Reuters) - After hitting a record low of 68.85 to the dollar last week, there are signs that the beleaguered Indian rupee may have entered a period of relative calm. Technical analysis certainly suggests so.

Raghuram Rajan's debut on Wednesday as the new Reserve Bank of India (RBI) governor was well-received and he immediately unveiled a slew of proposals to support the rupee.

This has raised hopes that the RBI will now adopt a new approach to defending the rupee, as the extent to which it's defense strategy has worked so far is hotly debated.

While the RBI has been intervening heavily in both spot and forward markets to support the currency, especially when it nears its record lows, there are technical signs that the rupee is set for some near-term consolidation.

The Fibonacci Retracement, a widely used technical tool that charts and predicts patterns in currency movements, signals an eventual move for the rupee to as high as 63 levels from current 66 levels.

Meanwhile, the number of open contracts in domestic rupee futures has slumped this month, which is a sign that traders are removing their short positions in the currency.

"The rupee is still in a precarious position but it has been sold off a lot and that means further currency weakness will be capped," Barclays strategist Hamish Pepper said.

Fundamentally, Pepper said the rupee was undervalued 21 percent against the dollar, among the biggest gaps among emerging market currencies.   Continued...

An employee counts Indian rupee currency notes inside a private money exchange office in New Delhi July 5, 2013. REUTERS/Adnan Abidi