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Momentum indicators and rising moving averages point to further gains for the Indian rupee, which broke through a key resistance three weeks ago, technical analysts say.
"I feel the rupee will now head towards 47.60 (to a dollar) by March, which is the next resistance level," said Rahul Badhwar, group technical analyst with HSBC in Mumbai.
The tightly policed rupee, which is partially convertible on the capital account, was trading at 47.91 on Wednesday afternoon after appreciating 0.55 per cent in 2002, its first annual gain in more than a decade.
The surge was being propelled by robust remittances from overseas Indians and exporters and higher foreign investments, which boosted foreign exchange reserves by $22 billion to more than $70 billion last year.
Badhwar said the rupee, which is fully convertible on the trade account and is held in check by the central bank, could head further up.
"A key resistance of 48.10 was broken on the weekly chart and we've closed above that level for at least three weeks now," he said.
That level had provided support to the rupee throughout the last quarter of 2001, before it was breached in early 2002 that took the unit to a life low of 49.08 in mid-May.
Support zones once breached, reverse their roles and become resistance levels for future upswings.
"The critical resistance will come at 47," Badhwar said.
Apart from being a round figure, a psychological barrier, the level had offered support to the rupee when it was weakening in the first half of 2001, and would therefore act as a resistance point now that the unit was gaining, analysts said.
The rupee had also risen past its 100-day simple moving average convincingly for the first time in several years, which indicated that more gains were in store, they said.
Moving averages are used to iron out volatility to show a longer-term trend. When the average intersects the price line, it generates buy or sell signals.
Positive signals
Popular momentum indicators suggest more upticks though there could be bouts of profit-taking.
The moving average convergence divergence (MACD) has continually stayed below the zero line on the daily and weekly charts since mid-2002.
"The MACD is very bullish for the rupee," said K Rajaram, chief of forex risk management at The Arvind Mills Ltd.
"The rupee will remain bid in the next two to three months, though there could be some short-term bounce for the dollar around 47.75."
The MACD is the difference between short- and long-term moving averages of closing prices, and signals the momentum of an asset, while hinting about likely trend reversals.