Other than trade and portfolio flows, the rupee has also depreciated along with regional currencies in the face of ongoing global market volatility. Indeed, since the beginning of June a number of key Asian currencies have weakened against the USD by 4 to 5% (including ringgit, won, Singapore dollar, Taiwanese Dollar, and the Rupiah). We therefore reckon that the 10% weakness in the rupee seen so far can be divided in equal halves between India specific weakness and regional pressure.

But what is the risk that the rupee could be due for further correction? A stubbornly high import bill on account of pockets of strength in the economy could keep the trade deficit high, but we think that the sharp weakening in October was an anomaly as opposed to a marker for things to come. While there may be further downside to exports, it is hard to see imports remaining so strong given that growth is slowing. Historically, a sharp decline in exports has almost always been accompanied by a correction in imports. We see two scenarios-first, external outlook weakens, commodity price eases, domestic demand wanes, and both imports and exports weaken; second, external uncertainties ease, commodity prices remain high, but exports also revive. Under both scenarios we expect the trade deficit to stabilize at a smaller, more "normal" magnitude.

Eoin Treacy's view The US Dollar broke its two-year progression of lower highs versus the Rupee in August and has rallied back towards the 2009 peak. It broke upwards from the short-term range today and a clear downward dynamic would be required to question short-term scope for additional upside.

The Asia Dollar Index posted its largest pullback since 2008 in September and bounced back to test the 200-day MA three weeks ago, where it has at least paused. It will need to sustain a move above 118 to indicate a return to medium-term demand dominance.

The Indian currency has probably weakened more than most but the majority of currencies have weakened against the US Dollar over the last few months. However, India's stock market has been more subject to deteriorating confidence than other Asian countries.

The Nifty Index has posted a progression of lower rally highs since November 2010 and retested the 200-day MA three weeks ago. It needs to sustain a move above 5400 to suggest demand is returning to dominance beyond the short term. The Bombay Banks Index led to the upside until late 2010 and has subsequently led to the downside. It needs to sustain a move above 12,000 to question medium-term supply dominance.