The rupee is likely to be very volatile this week on the back of tensions in the Middle-East.
Dealers are looking at two indicators to assess the movement of the rupee -- hard action by the United States and the United Kingdom against Iraq or the possibility of action being postponed. The UN inspectors are set to submit the report to the United Nations on Monday night local time.
Also, the US president George Bush is slated to make a speech on the same day. British premier Tony Blair is scheduled to meet with Bush on January 31.
The market is closely watching whether the US president is likely to make any statements and also on any moves by the US unilaterally or along with its allies against Iraq.
Also, reactions from the group of Islamic countries are likely to be closely watched as it could affect the oil prices. The market is likely to be cautious on Monday with the reaction of UN inspectors statements and Bush's statement to take place on Tuesday.
In case of any hard action by the US or its allies there is likely to be a knee-jerk reaction in the market.
The rupee in this case is likely to depreciate and pierce the 48 market and could go as low as 48.05. The markets are likely to stabilise as exporters are likely to start selling at this point, which could help the rupee to improve.
In the instance of no action being taken there could be some relief selling which could see the rupee appreciate and may even see it crossing the 47.80 mark and touching 47.75 before stabilising.
However, the RBI is likely to regulate the market on a continuous basis and will smoothen volatility. The RBI has not allowed the rupee to react on external events.
Also as the dollar has seen weakening against all the major currencies in the world which is also likely to help the rupee appreciate against the dollar.
The week ended January 18 saw the RBI mopping up more than $1 billion for the second week in the recent past.
The last week too, the RBI is expected to have mopped up around $500 million from the market in the initial few days.
Forwards
In the case of a war, the six-month forward is likely to move in a range of 3.50-3.75 per cent while the one-year forwards is likely to move in a range of 3.10-3.40 per cent.
In case the situation stabilises, the one-year forward is likely to touch 2.75 per cent again, while the six-month forward would move in a range of 3-3.25 per cent.