USD:
The US dollar has recently
come under some pressure as Treasury yields dropped significantly following the
higher than expected US inflation data last week.
The reaction might
seem illogical as higher inflation should lead to higher interest rates, but
the market might be starting to worry about growth.
If economic
activity deteriorates, the Fed might be forced to keep a hawkish bias due to
persistent inflationary pressures. This could put further pressure on economic
growth and eventually require rate cuts.
In fact, further
out the curve, we saw a slightly dovish repricing in interest rates
expectations despite hot inflation and no changes on the geopolitical side.
If the market’s
focus shifted to growth concerns, then the US Flash PMIs on Friday will be a
key test. Strong data could quell those fears and give the US dollar a boost. A
soft report, on the other hand, will likely increase growth concerns and put
further pressure on long-term Treasury yields and the greenback.
INR:
On the INR side, the
rupee rallied sharply last week after the RBI stepped in to curb its
depreciation through a combination of direct FX intervention and regulatory
measures. The central bank reportedly sold dollars to support the rupee, while
introducing a special facility to supply dollars directly to state-run oil
companies, redirecting significant dollar demand away from the spot market.
It also tightened
FX derivative rules to make speculative dollar positions more expensive and
limit further pressure on the currency. These measures forced traders
positioned for further rupee weakness to reassess their exposure, triggering a
sharp rebound. However, the intervention does not resolve the underlying
pressures from elevated oil prices and foreign capital outflows.
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 current divergence with oil is therefore unlikely to last much
longer and we could see the rupee coming under more pressure in the next days.
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 USDINRdropped all the way back to the major 95.10 support zone. The buyers
stepped in around the support, with a defined risk below it, to position for a
rally into the 96.10 resistance. The sellers, on the other hand, will want to
see the price breaking lower to extend the drop into the 94.00 handle next.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we have the most recent swing high around the 95.53 level that could act
as a minor resistance. The buyers will want to see the price breaking higher to
increase the bullish bets into the 96.10 resistance, while the sellers will
continue to step in around the level to keep targeting a break below 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 market participants will look
for either a break above the 95.53 level or below the 95.10 support.
UPCOMING CATALYSTS
On Thursday, we get the latest US
Jobless Claims figures. On Friday, we conclude the week with the US Flash PMIs.
This article was written by Giuseppe Dellamotta at investinglive.com.