FUNDAMENTAL OVERVIEW
USD:
The US dollar is now trading higher against most major currencies after another slate of strong US data this week and the US-Iran tensions potentially supporting the greenback. The market is still pricing 57 bps of easing by year-end but the crowded bearish positioning on the US dollar requires strong reasons for the greenback to keep falling.
There’s no such reason right now as we are seeing the US data surprising to the upside. Fed speakers are also sounding like the bar for further cuts was set high and they would need very clear improvement on the inflation side to consider a rate cut.
Today, we get the Flash US PMIs and the US Q4 GDP. The greenback might get another boost from strong data, especially on the PMIs front. We have also the potential US Supreme Court decision on Trump’s tariffs. If the Court were to rule against the tariffs, we might see the US dollar weakening on positive global growth expectations.
INR:
The Indian Rupee remains on a bearish structural trend against the US Dollar, but the recent positive developments on the tariffs and inflation front gave the INR a short-term boost. In fact, the US and India finally reached a trade deal and President Trump announced that he will lower the tariffs from 25% to 18%.
The RBI held interest rates steady at the last meeting and last week we saw inflation rising to 2.75% in January from 1.33% in December. This should push rate cuts aside for the time being as inflation is now inside the 2-6% tolerance band of the 4% target.
The downtrend in the Rupee seems to be resuming as the good news got priced in. The focus has now turned to the US Supreme Court. If the US Supreme Court rules against Trump’s tariffs we could see another strong rally in the Indian Rupee. On the other hand, if the Court were to keep the tariffs in place, nothing should change as the market has already adjusted to the tariffs.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINR has been consolidating at the lower bound of the channel as the dip-buyers continued to step in to position for a rally into the upper bound of the channel around the 93.00 handle. The bullish momentum now looks to be gathering pace as we got a key technical breakout on the lower timeframe. The sellers will want to see the price breaking below the lower bound of the channel to open the door for new lows with the 89.50 level as the first target.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the price broke above the key resistance zone around the 91.00 handle. The buyers piled in on the breakout to target the 93.00 handle next. If the were to retest the resistance now turned support, we can expect the buyers to continue to step in with a defined risk below the support to keep pushing into new highs. The sellers, on the other hand, will want to see the price falling back below the support to pile in for a drop into the lower bound of the channel targeting a breakout.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here although we can see that we have a minor upward trendline defining the bullish momentum. If we get a pullback into the support, the buyers might want to place their stop loss below the trendline as the pullback could extend into it. The sellers, on the other hand, will likely pile in on every break lower to target the lower bound of the channel.
UPCOMING CATALYSTS
Today we conclude the week with the US Q4 GDP, the US PCE price index for December, the US Flash PMIs and the potential US Supreme Court decision on Trump’s tariffs.
