Lack of action from both the Federal Reserve and the ECB threaten to depreciate the rupee further, especially if the US jobs data due on Friday disappoints. Coupled with that, domestic risks have risen, given the Reserve Bank of India's move to put key rates on hold. The Indian Meteorological Department's stance of a likely drought in the country may also lead to delay in fiscal policy measures such as a hike in diesel prices. This is likely to add to the pressure on the Indian rupee. In the worst-case scenario, rupee risks getting caught in the same maelstrom of global and domestic risk factors that pushed it to record lows in May and once again in June. However, any policy action from the central bank or strong hints of a third round of quantitative easing could help reverse rupee's downfall. The rupee faces initial resistance at the May 24 high of 56.40, followed by the May 31 high of 56.52. A sustained breach of those levels opens the way to 56.58, the 76.4 per cent Fibonacci retracement of the rupee-dollar pair fall from its record high of 57.32 on June 22 to the July 4 low of 54.18. The rupee fell to 56.14/15 versus its previous close of 55.84/85 as the euro stayed under pressure after the European Central Bank disappointed by not immediately providing any fresh stimulus to the suffering eurozone. "The next target is 57 soon. Importers still cover on dips, exporters may start covering partially for the next three months with a stop loss of 55.95 levels," India Forex noted in a report. The stock markets fell more than 1 per cent tracking the slump in risk assets globally. Traders expect resistance around the current levels, citing reduced oil-related dollar demand at the start of the month.

Source