FUNDAMENTAL OVERVIEW
USD:
The US Dollar weakened across the board yesterday following the soft US core inflation data but the initial moves were eventually faded and the greenback gained. It’s hard to explain such a price action but we got also renewed Trump’s threats against Iran following the US CPI report which weighed on the risk sentiment and could have been the reason for the comeback.
In terms of market pricing, traders firmed up bets on Fed rate cuts with the total easing by year-end increasing to 54 bps from 52 bps before the CPI release. Fed members continue to support the current patient and data-dependent stance. The outlook for the USD remains neutral/bearish for now.
Today, the focus will be on a potential US Supreme Court decision on Trump's tariffs. If tariffs get struck down, we might see general risk on sentiment as initial reaction and that could weigh on the US Dollar in the short-term, while also giving the Indian Rupee a boost. On the other hand, if tariffs are kept in place, it shouldn't change much given that the market got already used to tariffs.
INR:
The Indian Rupee remains on a bearish structural trend against the US Dollar, but the momentum has been less aggressive recently compared to last year. The suspected RBI’s interventions might be capping the upside.
The latest India’s annual inflation rate increased to 1.33% in December compared to 0.71% in November. This is still way below the RBI’s 4% target but closer to the bottom of their tolerance band at 2%. Traders don’t expect the RBI to deliver another rate cut at the upcoming meeting in February.
On the trade front, traders are watching for potential tariff hikes on India after Trump threatened to impose 25% tariffs on any country doing business with Iran as the US President continues to put pressure on the regime. India has been among the largest Iran’s trade partners in recent years, so traders are watching for the risk of another escalation.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINR is slowly approaching the key resistance around the 90.40 level. That’s where we can expect the sellers to step in with a defined risk above the resistance to position for drop back into the lower bound of the channel. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the upper bound of the channel around the 92.00 handle.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more clearly the recent choppy price action with a bounce near the 89.70 support as dip-buyers piled in quickly after the suspected RBI’s intervention. We might now get stuck in this range between the 89.70 support and the 90.40 resistance. The market participants will continue to play the range until we get a breakout on either side.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will look for dip-buying opportunities around the 89.70 support or pile in on a breakout, while the sellers will continue to step in around the resistance or wait for a downside breakout.
UPCOMING CATALYSTS
Today we get the November US Retail Sales and US PPI reports, so it’s going to be old data. The market will likely focus on the potential US Supreme Court decision on Trump’s tariffs. Tomorrow, we get the latest US Jobless Claims figures.
