FUNDAMENTAL
OVERVIEW
USD:
The US dollar has
been supported recently despite a dovish repricing triggered by Fed’s Williams
and Fed’s Jefferson comments that pushed back against expectations of a rate
hike in October.
The main reason was
surging Treasury yields and risk-off flows into the greenback supported also by
European debt concerns. The focus has been particularly on France, where
political uncertainty and concerns over the country’s large fiscal deficit have
pushed French government bond yields higher and widened the spread over German
Bunds to its highest level since the eurozone debt crisis.
A stabilization in
French spreads could allow some of the euro’s risk premium to unwind and
trigger a pullback in the US dollar, while further widening and contagion to
other countries would likely keep the greenback supported.
Moreover, the recent
US-Iran “ceasefire” seems to be coming to an end as Trump is weighing new
strikes against Iranian targets before the November elections. The reports
triggered a surge in oil prices and worsened the risk sentiment further.
In the short term,
a de-escalation will likely trigger a pullback in US dollar longs, while a prolonged
stalemate or a direct US-Iran confrontation should keep supporting the
greenback into new highs.
INR:
On the INR side, the
rupee has come under renewed pressure, falling into new record lows against the
US dollar despite the RBI delivering a rate hike on Wednesday and shifting its
stance to “calibrated tightening”.
The move was
accompanied by signals that further hikes could follow, but the additional
policy support has so far failed to offset strong dollar demand, foreign
portfolio outflows and the broader deterioration in the external backdrop.
The main driver continues
to be oil. India is heavily dependent on imported crude, meaning higher oil
prices require Indian importers to buy more dollars to pay for energy,
increasing demand for USD and worsening the country’s trade and current-account
position. The latest surge in crude oil driven by renewed US-Iran escalation,
is therefore negative for the rupee.
Monetary
tightening can support the currency through higher domestic yields, but when
the oil shock is large enough, the resulting increase in dollar demand can
overwhelm that effect. As long as oil prices remain elevated, the rupee is
likely to remain under pressure, leaving the RBI facing the difficult task of
tightening policy while simultaneously using its foreign-exchange reserves to
smooth the currency’s decline.
In the short-term,
a de-escalation could trigger a relief rally in the rupee as oil prices will
likely fall. A prolonged stalemate or direct US-Iran confrontation, on the
other hand, will continue weigh on the currency.
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 USDINRis breaking above the all-time high as surging oil prices are
sending the Indian rupee to new lows. If the price falls back below the
all-time high, we can expect the sellers to step in, with a defined risk above
the high, to position for a correction into the 96.10 support. The buyers, on
the other hand, will continue to pile in for new record highs as long as the
price stays above the all-time high.
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, the buyers will likely lean on the trendline, with a defined risk
below it, to keep targeting new record highs. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets into the
96.10 support next.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, we have another minor upward trendline that could act as support. If the
price pulls back, we can expect the buyers to lean on the trendline, with a
defined risk below it, to keep pushing into new highs. The sellers, on the other
hand, will look for a break to extend the correction into the next trendline.
UPCOMING CATALYSTS
Todaywe
get the latest US Jobless Claims figures. Tomorrow, we conclude the week with
the University of Michigan Consumer Sentiment survey. The focus will remain on
US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.