FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board again yesterday following several positive news on the US-Iran front. In fact, the bearish momentum got triggered by Trump pausing Project Freedom so that the US could work to finalise a deal with Iran. The pause was of course interpreted as another step towards a deal.
Later in the European session, we got an Axios report saying that US and Iran were getting close to a one-page memo to end the war and that US officials were expecting Iran's response to several key points in the next 48 hours. Tonight, we got reports that Iran was expected to deliver a response via Pakistani mediators today.
Looking ahead, the Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices. The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase.
After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.
INR:
On the INR side, the positive news on the US-Iran front offered some reprieve for the Indian Rupee as the risk sentiment improved on expectations that the war ends and the Strait of Hormuz gets finally reopened.
In the short-term, the Rupee should remain supported as long as the optimism remains intact, but if things go south again, we can expect another selloff into new record lows.
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 dropped significantly from the all-time highs following the positive US-Iran news. The price briefly fell below the upper bound of the channel today, but eventually bounced back above it. The sellers will want to see the price falling back below the upper bound to increase the bearish bets into the 92.60 level next. The buyers, on the other hand, will likely continue to pile in around the upper bound to keep pushing into new record highs.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the sellers piled in on the break below the minor upward trendline to target a pullback into the upper bound of the channel with the positive US-Iran news eventually providing the boost. There’s not much else we can glean from this timeframe, so we need to zoom in to see some more details.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we now have a minor downward trendline that could act as resistance. If we get a pullback, we can expect the sellers to lean on the trendline with a defined risk above it to position for a drop into the 92.60 level next. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new record highs.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures and an Iran’s response to US’s war-ending proposal is expected to come via Pakistani mediators. Tomorrow, we conclude the week with the US NFP report and University of Michigan Consumer Sentiment survey.
