FUNDAMENTAL
OVERVIEW
USD:
The US dollar weakened across the board last week after the US Treasury
announced that it will at least double the size of its liquidity-support
buyback operations for longer-dated Treasury securities, increasing the maximum
purchase from $2 billion to at least $4 billion per operation.
US Treasury Secretary Bessent then said that part of the operation is
sending a message to the market that yields do not reflect underlying
fundamentals and added that the buyback could be more than $4 billion depending
on conditions.
The Treasury intervention in the market
had a QE-like effect by lowering long-term yields
and easing financial conditions, although it’s not technically QE. That’s why
we saw the greenback selling off across the board following the announcement.
In the long-term, long-term yields are driven by monetary policy as they
are just the average expected path of short-term interest rates over the life
of the bond plus a term premium, but they are more sensitive to changes in
economic outlook.
The focus will now shift to the Federal Reserve and Warsh’s speech at the
Jackson Hole Symposium next week. I was expecting it to be a non-event given
Warsh’s preference of not giving forward guidance and the fact that the soft
NFP and CPI reports eased Fed tightening concerns. After the Treasury buyback
announcement, though, the speech could actually be a market-moving event.
If Warsh doesn’t lean against the easing in financial conditions, the
current “debasement” trades like long precious metals, bitcoin and
short US dollar will likely extend further. On the other hand, if he pushes
back saying things like “recent easing in financial conditions, if
sustained, could complicate the process of returning inflation to our
target” or “if recent easing threatens progress toward price
stability, we will not hesitate to respond appropriately” and so on, the
market may interpret it as a signal for a potentially hawkish September FOMC
and trigger pullbacks in the “debasement” trades.
INR:
On the INR side, the
currency continues to lose ground against the dollar as the deadlock between
the US and Iran shows no signs of improving anytime soon. Moreover, US Treasury
Secretary Bessent is expected to unveil the ‘toughest’ sanctions in history
against Iran today.
This situation
will likely keep oil prices elevated. Higher oil prices tend to weaken the
Indian rupee because India imports most of its oil, increasing demand for US
dollars, widening the trade deficit, and putting pressure on the country’s
external balances.
In the short-term,
the INR will continue to be driven by oil prices, so the path of least
resistance will remain to the downside until the US and Iran find an agreement
and the Strait of Hormuz is reopened.
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 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 approaching the key 96.10 resistance zone. That’s where we can
expect the sellers 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
new record highs.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we have an upward trendline defining the bullish momentum into the
resistance. The buyers will likely continue 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 pile in for a drop into the support zone next.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, there’s not much we can add here as the buyers will continue to have a better
risk to reward setup around the trendline, while the sellers will likely wait
for the price to come into the resistance or break the trendline to position
for new lows.
UPCOMING CATALYSTS
Today we have US Treasury Secretary Bessent unveiling the sanctions against
Iran. Tomorrow, we get the US Consumer Confidence report. On Wednesday, we have
the US PCE price index. On Thursday, we get the US Jobless Claims figures. On
Friday, we conclude the week with Fed Chair Warsh’s speech at the Jackson Hole
Symposium.
This article was written by Giuseppe Dellamotta at investinglive.com.