KEY POINTS:
- US dollar recovers the Christmas week losses
- The market is still betting on at least two rate cuts in 2026 from the Fed
- On Friday, we have the US NFP report
- Indian Rupee erased half of its gains since the RBI's intervention
- Trump threatens more tariffs on India if they don't help with Russian oil issue
- Key 90.40 level in focus as a break above it should open the door for new record highs
FUNDAMENTAL OVERVIEW
USD:
The greenback weakened across the board during the Christmas week but eventually recovered most of the losses. The price action during Christmas holidays is generally just noise, so it’s not surprising that most markets returned to original levels.
In terms of macro, nothing has changed in these two weeks. The latest NFP and CPI reports came both on the softer side and the market is still pricing 63 bps of easing by year-end. The data in December was taken with a pinch of salt given the shutdown related issues, but the next releases will give us a clearer picture.
The market expects the Fed to cut in March at the earliest, so we will need very soft data this month to force them to act sooner. Nonetheless, if the data continues to come in on the softer side, the market will likely increase the total easing for 2026 and that should weigh on the US dollar.
On the other hand, if the data shows strength, traders will likely pare back their rate cut bets and that will likely offer the greenback some support.
INR:
The Indian Rupee enjoyed a relief rally after the RBI intervened on December 17. Unfortunately, the big picture trend remains skewed to the downside for the Rupee, and we are already seeing the gains evaporating with the USD/INR pair approaching the key 90.40 level.
Moreover, Trump threatened more tariffs on India today “if they don’t help on Russian oil issue”. Trump wants India to stop importing Russian oil and force Moscow to accept a peace deal with Ukraine.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINR fell all the way back to the lower bound of the rising channel following the RBI’s intervention on December 17. The dip-buyers started to pile in around the bottom trendline and after breaking above the key 89.70 level, increased the bullish bets into the 90.40 resistance. A break above the 90.40 level should open the door for a rally into a new record high.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we have a strong resistance around the 90.40 level. The sellers will likely step in there with a defined risk above the resistance to position for a drop into the 89.60 level. The buyers, on the other hand, will look for a break higher to increase the bullish bets into a new all-time high.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much else we can add here as the sellers will likely step in around the resistance to target new lows, while the buyers will look for a break higher to position for a rally into a new record high.
UPCOMING CATALYSTS
Today we get the US ISM Manufacturing PMI. On Wednesday, we have the US ADP, the US ISM Services PMI and the US Job Openings data. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report.
