FUNDAMENTAL
OVERVIEW
USD:
The US dollar
rallied across the board on Wednesday following the FOMC decision as the market
initially viewed it as more hawkish than expected. As a reminder, the Fed hiked
interest rates by 25 bps as widely expected in an unanimous decision. Moreover,
the part saying that inflation remained elevated in part reflecting supply
shocks was removed. The SEP showed an upward revision for growth and inflation,
and downward revision for unemployment.
The most important
thing was the dot plot where the Fed projected just one more rate hike in 2026,
with rates staying higher throughout 2027 before rate cuts coming in 2028. That
was more dovish compared to market’s pricing which saw one more rate hike in
2026 and two more in 2027.
I think this shows that the Fed has low appetite for an
extended tightening cycle.
Fed Chair Warsh mostly repeated his Jackson Hole speech, but he was still seen
as being more hawkish. I’m not sure why. Anyway, the market brought forward
rate hike expectations for October, with the probability now standing around
50%. I guess that’s because Warsh mentioned that they want to see a timelier
return to the 2% target.
The market’s focus is now on tomorrow’s UN General Assembly, as Trump
called a meeting with Gulf leaders on the sidelines to discuss the next steps
in the war with Iran. The Iranian delegation was also allowed to participate in
the Assembly, so there will likely be a meeting between Trump and Iranian
President Pezeshkian.
Keep in mind that a de-escalation would send oil prices lower, further
easing inflation and rate hike concern, while weighing on the greenback.
Economic data will also be important given the current market’s pricing.
When positioning and market expectations become stretched, even a modest shift
in the data can trigger a significant reversal. If US data starts surprising to
the downside, expectations for aggressive rate hikes will likely be reduced, leading
to a fall in the US dollar.
INR:
On the INR side, the
currency erased all the RBI intervention-driven gains recently as it quickly caught
up with the fundamentals after oil prices surged to new highs. Higher oil
prices are negative for the rupee because India imports most of its crude, so a
larger oil bill increases demand for dollars, widens the trade deficit and puts
downward pressure on INR.
In the short-term,
the INR will continue to be driven mainly by oil prices, so the developments in
the Middle East will be key. A de-escalation should give the Rupee a boost and
we might see the USD/INR pair dropping back to the 95.10 support. Conversely, further
escalation will likely trigger a break above the key 96.10 resistance and push
the USD/INR pair to all-time highs.
In the big
picture, the Indian Rupee remains on a bearish structural trend against the US dollar,
so dip-buyers will continue to look for opportunities around strong major 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 USDINRstalled at the major resistance zone around the 96.10 level. This is
where the sellers will likely continue to step in with a defined risk above the
resistance to position for a drop back into the 95.10 support. The buyers, on
the other hand, will want to see the price breaking higher to increase the
bullish bets into the record highs next.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we have an upward trendline defining the bullish momentum. If we get a
pullback into the trendline, we can expect the buyers to lean on it with a
defined risk below it to keep pushing into new highs. The sellers, on the other
hand, will look for a break lower to increase the bearish bets into the 95.10
support.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, there’s not much we can add here as the buyers will have a better risk
to reward setup around the trendline, while the sellers will want to see a
break to target new lows.
UPCOMING CATALYSTS
Tomorrow, we have Trump meeting
with Gulf leaders and potentially with Iran’s President at the UN General
Assembly. On Wednesday, we get the Flash US PMIs. On Thursday, we have the
Trump-Xi meeting.
This article was written by Giuseppe Dellamotta at investinglive.com.