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 might be risk-off flows into the greenback due to 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 US-Iran negotiations continue to be at a stalemate and with a
light calendar this week, the focus will probably remain on the Middle East.
A breakthrough would be negative for the US
dollar 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 decoupled from oil prices last week as the currency weakened further
despite no major move in the crude market. Nevertheless, oil prices continue to
be the main driver for the rupee since India imports most of its crude, so a
larger oil bill increases demand for dollars, widens the trade deficit and puts
downward pressure on the INR.
On Wednesday, we
have the RBI rate decision. In the latest Reuters poll, 35 of 61 economists
(57%) expected a hike, while swap markets were already fully pricing one. The expectations
increased after the August CPI rose to 4.82%, above the RBI’s 4% target for the
third consecutive month.
More importantly,
the increase is becoming broader rather than being confined to a few
components. With growth remaining strong, oil prices staying elevated and a global
hiking cycle, traders expect the RBI to follow suit, especially given the Rupee’s
slide this year.
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 and
extended the gains into new highs. The natural target should be the all-time high
around the 97.33 level. If the price gets there, we can expect the sellers to
step in, 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. If we get a
pullback, the buyers will likely 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 start targeting a correction 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 start
targeting a pullback into the 95.75 level next.
UPCOMING CATALYSTS
Todaywe get
the US ISM Services PMI. On Wednesday, we have the RBI rate decision and the FOMC
meeting minutes. On Thursday, we get the latest US Jobless Claims figures. On
Friday, we conclude the week with the University of Michigan Consumer Sentiment
survey.
This article was written by Giuseppe Dellamotta at investinglive.com.