New Delhi: Stock markets are likely to see high volatility this week as a weak rupee, insipid domestic and international cues and settlement in this month's derivative contracts will influence sentiments, analysts said.
"This week would continue to pose challenges for the markets in light of high dollar rates and weak domestic and international news flow," Inventure Growth & Securities Chairman & MD Nagji K Rita said.
Analysts also said that cautious approach should be adopted by investors since volatility is expected to be high in view of futures and options expiry on Thursday (June 28).
"As markets are in an expiry week, cautious approach is recommended since volatility is expected to be high. Important resistance for Nifty exists at 5,195-5,205 and a close above these levels will definitely make the medium term trend bullish," Rakesh Goel, Vice President, Bonanza Portfolio said.
Investors are also keeping a close watch on the progress of monsoon rains as they are important for farm output and economic growth, traders said.
Meanwhile, the rupee on Friday fell to all-time low of 57.37 intra-day against dollar on intense demand for the US currency, particularly from oil importers, but ended at 57.15, recording this year's biggest fall of 85 paise in a day.
Experts believe that any step taken by the government or RBI to prop up the economy could cheer markets.
"Positive policy action from the government at this stage could lead to a huge out-performance coming through from India due to its low external linkages," said Sandip Sabharwal, CEO - PMS, Prabhudas Lilladher Group.
On the global front, a key summit of the European Union is scheduled on 28 and 29 June, 2012, to discuss the ongoing European debt crisis. Any positive fallout from the EU Summit could influence prices of commodities, including oil.
However, if any concrete steps are not announced, global markets could see a further sell-off.
"EU summit is expected to discuss measures on combating the crises, in case concrete measures are not announced, then it can cause further sell-off in risk assets and rally in the US dollar," said Anindya Banerjee, Senior Manager Currency Derivatives Research Desk, Kotak Securities.
The BSE benchmark Sensex had ended last week higher by 23 points at 16,972.51.