The Indian Rupee’s relief rally pauses after the surprisingly hawkish Fed, Hormuz tensions
FUNDAMENTAL
OVERVIEW
USD:
The US dollar surged across the board on Wednesday on the more hawkish than
expected dot plot (the consensus was looking for no cuts or hikes this year). The
median dot showed one rate hike this year and some of those hawkish members
pencilled in multiple hikes. By projecting a rate hike, the Fed effectively
adopted a tightening bias in the short-term.
The market increased rate hike bets immediately with now 41 bps of
tightening priced in by year-end. There’s a 36% chance of a hike already in
July and 74% probability of a move in September.
The economic data and financial markets will now guide the Fed as Warsh
stated that “financial markets perform best when they react to incoming data
and are less efficient when they have to ask how the Federal Reserve will react
to the incoming data”. He added that “financial markets are the most important
source of information to guide the central bank”.
Trump also posted on Truth Social and, unlike his usual stance under Fed
Chair Powell, did not object to the Fed’s decision. In fact, he said that “rate
hikes could happen,” which sounds like a green light for Warsh and the Fed to
do whatever they deem necessary. If the data says they need to hike, they will.
INR:
On the INR side, the
Rupee staged a strong relief rally since Trump’s deal announcement two weeks
ago as oil prices cratered on expectations of Hormuz reopening.
The bullish
momentum has waned in the final part of last week following the hawkish Fed
decision and some minor tensions in the Middle East as Israel continued to strike
Hezbollah in Southern Lebanon despite the ceasefire. The Strait of Hormuz was closed again in retaliation but the US-Iran talks in Switzerland seem to have already de-escalated the situation.
In the big
picture, the Indian Rupee remains on a bearish structural trend against the US dollar,
so the dip-buyers will likely 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 USDINR broke the upward trendline and extended the drop into new lows before
consolidating. We now have a downward trendline defining the bearish momentum.
If we get a pullback, we can expect the sellers to lean on the trendline with a
defined risk above it to keep pushing into new lows. The buyers, on the other
hand, will look for a break to pile in for a rally into the 96.00 handle next.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we have a strong resistance zone around the 95.10 area. That will likely
be the first opportunity for the sellers to position for a drop into new lows
with a defined risk above the resistance. The buyers, on the other hand, will
look for a break to extend the pullback into the trendline.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, there’s not much we can add here as from a risk management perspective,
the sellers will have a better risk to reward setup around the resistance and
the trendline, while the buyers will need upside breaks to open the door for
new highs.
UPCOMING CATALYSTS
Tomorrow, we have the US
Flash PMIs. On Thursday, we get the US Jobless Claims data and the US PCE
report. On Friday, we conclude the week with the final University of Michigan
consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.