However, inflow of foreign funds which helped prevent a sharp fall in July would continue to provide support in August too and enable the market to be range bound, according to Angel Commodities in a monthly report. Optimistic market sentiments touching all time high levels cushioned further fall in the Indian Rupee last month.
On the economic front, favourable inflation, industrial production and manufacturing output data from the country failed to provide some respite to fall in the Indian Rupee. Rise in manufacturing and non-manufacturing data of the country restricted sharp fall in the currency.
The Dollar Index (DX), which tracks the performance of the US dollar against a basket of six currencies gained by more than 2 percent in July 2014. While on the year till date, the DX gained around 1.7 percent. The currency rose as a result of rise in risk aversion in market sentiments which led to increase in demand for the low yielding currency.
Further, favourable economic growth in Q2 of 2014 will prompt the US Federal Reserve to continue with its QE tapering throughout the year which will support an upside in the currency. Upbeat market sentiments will lead to fall in demand for the low yielding currency which will cap sharp upside in the currency.
Euro is expected to trade on a mixed note on the back of forecast for favourable economic data from the region coupled with optimistic market sentiments will support an upside in the currency.
Additionally, constant fall in unemployment scenario of the region will continue with positive movement in the currency. While on the other hand, forecast for weak manufacturing and investor confidence of the region will exert downside pressure in the currency. Investors will take further cues from European Central Bank (ECB) meeting on 7th August 2014 and will provide further direction to the currency if any major announcement happens
Support levels for Dollar Index: 79.3, 78.9, resistance: 82, 83
USD/INR Aug14: Support 59.6, 58.7, resistance: 62,63