FUNDAMENTAL OVERVIEW
USD:
The US Dollar spiked higher following the strong US NFP report on Wednesday as the market pared back slightly Fed rate cut bets, but surprisingly gave back all the gains soon after. Maybe the market is still too convinced of more labour market weakness to come, or it decided to wait for the US CPI. Whatever the reason, the data since the start of the year has been clearly pointing to improving conditions that do not justify further rate cuts.
Today, all eyes will be on the US CPI report. The Fed doesn't see the labour market contributing to inflationary pressures given the lower wage growth and higher productivity, so it could still cut rates solely based on more inflation easing (barring a quick deterioration in the labour market).
If we get an in-line or soft CPI, there shouldn't be much change in terms of market pricing as the two rate cuts expected by the market are already above the Fed's projection. Nonetheless, we could see a dovish type of reaction in the market with the US dollar coming under some pressure.
On the other hand, a hot report will likely trigger a stronger hawkish reaction following the hot NFP report on Wednesday. In this case, the US Dollar would likely rally across the board.
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 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 yesterday we saw inflation rising further in January to 2.75% from 1.33% in December, beating the 2.5% forecast. This should push rate cuts aside for the time being.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINR is rejecting the lower bound of the channel as the dip-buyers continue to step in to position for a rally into the upper bound of the channel around the 93.00 handle. The sellers will want to see the price breaking lower 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 a strong resistance zone around the 91.00 handle where we have also the confluence with a downward trendline. The buyers will want to see the price breaking higher to increase the bullish bets into new highs. The sellers, on the other hand, will likely step in around the resistance with a defined risk above it to target a break below the lower bound of the channel.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will continue to step in around the lower bound of the channel and look for a break above the resistance to increase the bullish bets into new highs. The sellers, on the other hand, will look for short opportunities around the resistance and pile in with more conviction on a break below the lower bound of the channel.
UPCOMING CATALYSTS
Today we conclude the week with the US CPI report.
