FUNDAMENTAL
OVERVIEW
USD:
The US dollar has
been supported recently by a hawkish repricing in interest rate expectations
triggered by strong US economic data and renewed US-Iran tensions.
The bullish momentum accelerated last
Wednesday when Trump poured cold water
on expectations of an earlier end to the Iran war after he reiterated that the
US would make a deal with Tehran after the November elections.
Moreover, on Wednesday we also got a very strong
set of US Flash PMIs that sent Treasury yields to new highs and the
odds for a rate hike in October to roughly 70%.
Heading into the weekend, the hopes for a
US-Iran deal returned after Iran sent a proposal to reopen the Strait of Hormuz
within seven days on certain conditions. Unfortunately, Trump rejected the proposal on Saturday and told reporters that he expected
to resume bombing Iran after the midterms.
Yesterday, we
started to get some positive headlines during the American session pointing to
possible US concessions. According to Axios, Trump reportedly offered Iran sanctions relief and
access to frozen funds in exchange for progress on nuclear program, although
the US President later denied such reports.
He did confirm
though that the American and Iranian negotiators are engaged in talks through
mediators. Iranian Foreign Minister Araghchi said he expected a formal answer today
to Tehran’s proposal to reopen the Strait of Hormuz.
The focus will remain mostly on the Middle East
and the Fed. A breakthrough would be negative for the US dollar in the
short-term as the aggressive rate hike bets will likely get pared back. A
prolonged stalemate or even a re-escalation, on the other hand, will likely
continue to support the greenback into new highs.
INR:
On the INR side, the
rupee has been following oil prices as usual, with the latest upside in crude
due to waning hopes for a quick deal weighing on the currency.
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 US-Iran
negotiations will be key. A breakthrough should give the Indian rupee a boost
and we might see the USD/INR pair dropping back to the 95.10 support pretty
quickly. Conversely, a negative outcome or even a re-escalation, will likely continue
to support the pair into new 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 USDINRbroke above the major resistance zone around the 96.10 level. This
has opened the door for a rally into new record highs, with the buyers piling
in on the break. If the price reaches the 97.33 level, we can expect the
sellers to step in there, with a defined risk above the record highs, to
position for a correction into the 96.10 support. The buyers, on the other
hand, will look for a break to increase the bullish bets into new highs.
USDINR
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we have an upward trendline defining the bullish momentum. The buyers
will likely continue to lean on the trendline, with a defined risk below it, to
keep targeting new highs. The sellers, on the other hand, will want to see the
price breaking lower to pile in for a drop into the 95.75 level next.
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 need a break to target
a pullback into the 95.75 leve next.
UPCOMING CATALYSTS
Today, we get the US
Consumer Confidence report and the US Job Openings data. Tomorrow, we have the
US ADP and the US PCE price index. On Thursday, we get the US ISM Manufacturing
PMI and the latest US Jobless Claims figures. On Friday, we conclude the week with
the US NFP report. The focus, though, will remain on US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.