Indian Rupee rebounds on suspected RBI intervention; strong dollar and higher oil prices remain a headwind
FUNDAMENTAL
OVERVIEW
USD:
The US dollar strengthened across the board on Friday
after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium.
The key
passage was him saying “I would be hard pressed to describe broad
financial conditions as restrictive". The market interpreted that as him
leaning against the recent easing in financial conditions and, therefore,
retightened them.
This process has,
of course, extended the corrections in the “debasement" trades, with
the US dollar returning to pre-US Treasury announcement levels. The rate hike
probabilities for the September meeting have also increased, with the market
now seeing a 60% chance of a hike.
Warsh has also reiterated that the Fed is focused solely on inflation now
and mentioned that the progress has been slow. For this reason, I think only a
soft US CPI report could bring the probabilities below 50% and deter the Fed
from hiking at the upcoming meeting.
If the
probabilities stay at or above 50%, the Fed might be forced to hike regardless
because failure to do so would send a dovish message.
INR:
On the INR side, the
currency sold off on Friday following the hawkish Fed Chair Warsh speech at
Jackson Hole. Nevertheless, we saw a quick rebound today despite a jump in oil
prices. This might have been the result of RBI’s intervention since we haven’t
got any positive catalyst for the rupee.
Therefore, we will
likely see dip-buyers in the USD/INR pair stepping in soon, as intervention
gains get usually faded without a change in fundamentals.
In the short-term,
the INR will continue to be driven by oil prices, so the rangebound price
action could persist for longer 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 trading between the key 95.10 support and the 96.10 resistance.
Market participants will continue to play the range by buying at support and
selling at resistance until we get a breakout on either side.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour
chart, we got the pullback into the minor support zone around the 95.60 level.
This is where we can expect the buyers to step in with a defined risk below the
support to keep pushing into the resistance. The sellers, on the other hand,
will look for a break lower to pile in for a drop back into the 95.10 support
next.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour
chart, there’s not much we can add here, but there’s a minor upward trendline adding
confluence to the minor support around the 95.60 level. Again, the buyers will
likely step in here to target a rally into the 96.10 resistance, while the
sellers will look for a break lower to extend the drop into the 95.10 support.
UPCOMING CATALYSTS
Tomorrow, we have the
US ISM Manufacturing PMI and the US Job Openings data. On Wednesday, we get the
US ADP report. On Thursday, we have Fed’s Waller, the US Jobless Claims and the
US ISM Services PMI. On Friday, we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.