Indian Rupee continues to erase gains as US-Iran tensions, higher oil prices bite

FUNDAMENTAL
OVERVIEW

USD:

The US dollar has been mostly rangebound for the past months with bouts of
weakness on positive US-Iran headlines, and strength on negative developments. This
week, the greenback has been supported by renewed tensions in the Middle East
as US and Iran exchanged fire once again, with Iran even attacking US bases in
the Gulf.

The most important thing is the fact that the negotiating stalemate
continues to extend, and the reopening of the Strait of Hormuz is moving
further and further away compared to previous expectations.

The signal is that nobody wants to restart the war, which is good, but the
Strait of Hormuz will remain closed until there’s a deal. Trump looks in no
hurry whatsoever with the stock market trading at record highs and he recently
even said that the Strait could remain closed through Labor Day, which is in
September. That’s going to keep oil prices persistently elevated.

We are approaching the June FOMC meeting and it’s now almost assured that
the Fed is going to abandon the easing bias. If nothing changes before then, we
might get a more hawkish than expected decision which could reverberate across
markets and give the US dollar a strong boost.

Therefore, in the short-term, a resolution and the reopening of the Strait
will likely weigh on the greenback on falling oil prices and increased rate cut
bets. But if the Strait remains closed for longer and oil prices stay elevated,
the risk of the Fed being forced to hike anyway increases, which should keep
supporting the greenback.

INR:

On the INR side, the
Rupee has been slowly erasing gains as the US-Iran deal hopes started to fade
and the renewed tensions in the Middle East pushed oil prices higher.

In the short-term,
the Rupee has been closely correlated with oil prices, so positive developments
on the US-Iran front should keep giving the INR a boost. Conversely, extended
stalemate or further escalations will likely keep weighing on the currency and
push it into new record lows.

On Friday, we also
have the RBI rate decision where the central bank is expected to keep interest
rates unchanged. A surprise rate hike could give the INR a boost in the
short-term but the US-Iran situation and oil prices will remain the main
drivers.

In the big
picture, the Indian Rupee remains on a bearish structural trend against the US dollar,
so the dip-buyers will likely look for opportunities around strong technical
levels to keep pushing the USD/INR pair into new highs.

USDINR TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily
chart, we can see that USDINR is rose back above the trendline and the key resistance zone around
the 96.00 handle. This has technically flipped the bias more bullish. The
buyers will likely step in around the resistance now turned support with a
defined risk below it to keep pushing into new record highs. The sellers, on
the other hand, will want to see the price falling back below the zone to pile
in for a drop into new lows.

USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour
chart, we can see that the buyers piled in on the break above the downward
trendline and the price is now consolidating around the support zone. There’s not
much to add here as the buyers will continue to step in around the support with
a defined risk below it to keep pushing into new highs, while the sellers will
want to see the price falling back below the zone to pile in for a drop into new
lows.

USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour
chart, there’s nothing to add as the bullish structure should remain intact
unless the price breaks below the most recent swing low around the 95.80 level.
Fundamentally, we would need fresh positive US-Iran developments to reverse the
bullish momentum and that’s unlikely to happen at least until next week.

UPCOMING CATALYSTS

Today, we get the latest US Jobless Claims figures. Tomorrow, we conclude the
week with the RBI rate decision and the US NFP report.

This article was written by Giuseppe Dellamotta at investinglive.com.