FUNDAMENTAL OVERVIEW
USD:
The US dollar strengthened across the board heading into the weekend as traders hedged on risks of a potential ground invasion. This morning, we are seeing some weakness as those hedges get unwound.
The focus remains solely on the US-Iran negotiations and there’s some cautious optimism as Pakistan confirmed that negotiations may take place in Islamabad in the coming days and Trump said that they are performing extremely well and they could make a deal pretty soon, although he added that they might fail as well.
The path of least resistance for the dollar remains to the upside. Traders will keep a watchful eye on the headlines and especially on Trump’s Truth Social account, as we are always one post away from huge market moves.
Traders are not pricing in any change to interest rates this year as we have just 5 bps of tightening expected by year-end.
INR:
The Indian rupee opened higher today after the RBI capped the open positions banks can hold in the onshore currency market at $100 million at the end of each trading day. This measure was announced on Friday after market close.
The central bank continues to intervene in the market but with no avail. In fact, the gains were quickly faded, and the rupee is now trading around Friday levels again.
Traders continue to focus on the US-Iran negotiations and the risks of further escalation. If we do get an escalation like a ground invasion, then we will likely see the USDINR pair skyrocketing again. On the other hand, if the US and Iran reach a deal or Trump decides to pull back militarily and end the hostilities, then we should get a meaningful correction.
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 into new highs.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINR opened near the upper bound of the broken channel and rose immediately as dip-buyers quickly piled in to fade the intervention. If the price falls back to the upper bound of the channel, we can expect the buyers to step in to keep pushing into new highs. The sellers will need the price to fall below the upper bound of the channel to regain some control and target a bigger correction into the lower bound of the channel.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see how quickly traders faded the RBI’s intervention once again. The price is now trading right around Friday’s levels. We can expect the sellers to step in here with a defined risk above the highs to position for a drop back into the upper bound of the channel. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new highs.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the sellers will look for a pullback into the lower bound of the channel, while the buyers will target a break.
UPCOMING CATALYSTS
Today we have Fed Chair Powell speaking. Tomorrow, we get the US Consumer Confidence and US Job Openings data. On Wednesday, we have the US ADP, the US Retail Sales and the US ISM Manufacturing PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report.
