The rupee (INR) broke below the range between 70.75 and 71 on Friday, as it closed at 71.28 against the dollar (USD). This is the lowest weekly close since the beginning of September and year-to-date the INR has lost 2.2 per cent against USD. Thus, the rupee will most likely depreciate from current levels.

On the downside, there are supports at 71.4 and 71.6. If the Indian currency takes support and appreciates it will face hurdles at 71.2 and then at the key level of 71. But the outlook will be bearish for rupee until it breaks above 71.

The weekly statistical supplement released by the RBI on Friday showed that the foreign reserves has shot up by $3.5 billion over the previous week. The total reserves increased to a lifetime high of $446.09 billion as on November 8 from $442.58 billion as on November 1. Foreign Currency Assets (FCA), the largest component of the reserves went up by $3.2 billion to $413.65 billion from $410.45 in the same period. The increase could be predominantly because of the strengthening of the dollar. High foreign reserves could come in handy for the RBI to stem volatility in the rupee.

The demand for dollar has lifted the dollar index, negatively impacting the rupee. The index, currently trading at 98.2 will most likely rise towards 98.34 and 98.5. Considering that the dollar index is trading above 98 the rupee is trading below 71, the near-term outlook for the domestic currency is weak. Hence, traders can short rupee on rallies with stop-loss at 71.1.

Supports: 71.4 and 71.6

Resistances: 71 and 71.2