Current levels

Spot 42.26/28.	Low 42.25	High 42.36 (Lowest Bid and Highest Offer)
1 Month Premium	15.77%	Rs 42.87
3 Month Premium	13.51%	Rs 43.77
6 Month Premium	12.50%	Rs 44.98
12 Mths Premium	11.61%	Rs 47.21

Spot - Technical View
The Tic chart shows a potential Double Top, with tops at 42.40. The Dollar has softened slightly today on lackof corporate buying interest and could gravitate towards 42.20 today. Unless buying emerges, there are at least even chances that 42.20 could give way, opening up 42.10. A break of 42.10 opens up 41.80 once again.

The above is possible only on account of 3 factors:

1. either SBI-RBI drive the Dollar down, something they have wisely refrained from doing over the last few days
2. market sentiment for the Rupee improves
3. Forward Premia rise so high, say 1 month levels touch 20% (which, by the way implies a July forward difference of almost 94 paise, compared to the current 74 paise), that it becomes attractive for exporters to sell Dollars.

Examining Sentiment
Looking at Point 2, it seems the market has no confidence in the present government's financial acumen (whether they have any other acumen or not is a separate issue). Also, there is this disappointment that the FIIs may not be looking to bring in truckloads of cash even at such depressed Sensex levels due to their disenchantment with Asia.

Now, UTI has pumped in 980 Crores over the last few weeks (should we all buy Units?) and we'd think FIIs might be tempted to come back in as soon as the Asian crisis eases somewhat. But that could take another 2 months or so.

As to the financial acumen of the government, they really have made fools of themselves. However, to counter this, there are small pieces of underlying good news which the market is ignoring - instances of better corporate results and productivity, depository systems, repeal of the ULCRA etc. These will have an impact over a longer time frame.

Conclusion
While Ramakrishna Hegde's promise of 40 by fiscal year end sounds like a tall order right now, levels of 44/45 in the next 2-3 months also seems a little far-fetched.

The RBI might be happy to just see the Rupee stabilise near current levels (give or take 10-20 paise). As such Buy/ Sell decisions need to be taken on the basis of the Forward Premium cost.

Strategy
Exporters could look top receive some premium at say 17% for 1 month and 13.5% for 6 months. The cost of cover is a little high for importers, they should hold out. Those with old Dollar longs can hang onto them.

Disclaimer: This report is based on current information available to the public. Data herein is not guaranteed for accuracy. While the views above are our best assessment of the markets as of the moment and are proferred with the best of intentions, the underlying assumptions might change without notice, and as such the strategies might be rendered ineffective or even wrong. Those who adopt the suggested strategies do so at their own risk. We are not liabale or responsible for any profits or losses that might arise due to any actions taken based on teh above report. We point out that world financial markets, and especially the forex markets are inherently risky and assume that those who trade these markets are well aware of such risks.

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