Indian Rupee surges after massive dollar-selling intervention. What to look for next?
FUNDAMENTAL
OVERVIEW
USD:
The US dollar sold off across the board in the final part of last week. The
initial weakness came from the FOMC rate decision as the extra dissent from Fed’s
Kashkari wasn’t taken as a major hawkish surprise.
On Thursday, we had heavy dollar-selling flows stemming from interventions by
Japan and South Korea. The losses then extended on Friday when reports confirmed
that US Treasury participated in the intervention, the first joint operation
since 2011. Moreover, both Japan’s Ministry of Finance and US Treasury
Secretary Bessent have said that they will not hesitate to conduct more joint
interventions in the future.
Given that USD/JPY is now trading around April-May levels, there’s a low
probability of another intervention in the near-future, so the greenback should
go back trading on fundamentals.
Overall, the fundamentals haven’t changed much, so it’s just about waiting
for the US CPI and further US-Iran developments. A de-escalation would keep the
greenback under pressure on easing inflationary worries and lower rate hike
probabilities. An escalation, on the other hand, should continue to support it
on Fed tightening risks.
INR:
On the INR side, the
Rupee has benefited from the lack of major hawkish surprises at the FOMC
decision, heavy US dollar-selling flows and positive US-Iran headlines.
In hindsight, the
RBI’s intervention near record lows was well-timed, but going forward the Rupee
will need a dovish repricing for Fed interest rate expectations and further
de-escalation in the Middle East to extend the gains.
On Wednesday, we
have the RBI rate decision which is expected to keep the repo rate unchanged at
5.25%. The MPC is expected to maintain its neutral stance. The RBI may deliver cautionary
or slightly hawkish tone. A few investment banks expect the central bank to
signal that continued global volatility or sustained spikes in crude prices
could force rate hikes in the second half of FY27.
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 USDINRextended the drop below the key 96.10 support zone following heavy dollar-selling
flows triggered by FX interventions. The price is approaching the next key zone
around the 95.10 level.
That’s where we
can expect the buyers to step in with a defined risk below the support to
position for a rally back into the 96.10 resistance. The sellers, on the other
hand, will want to see the price breaking lower to increase the bearish bets
into the 94.00 handle next.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we can see the price action is forming a potential falling wedge. This is
generally a reversal pattern as it signals waning momentum. The sellers will
continue to lean on the top trendline with a defined risk above it to keep
pushing into new lows, while the buyers will look for a break to pile in for a
rally into the 96.10 resistance.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, there’s not much we can add here as the sellers will have a better risk
to reward setup around the top trendline, while the buyers will either wait for
a break or a drop into the 95.10 support zone.
UPCOMING CATALYSTS
Today, we have the US
ISM Manufacturing PMI. Tomorrow, we get the US Job Openings data. On Wednesday,
we have the RBI rate decision, the US ADP and ISM Services PMI. On Thursday, we
get the latest US Jobless Claims figures. On Friday, we conclude the week with
the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.