FUNDAMENTAL
OVERVIEW
USD:
The US dollar rallied strongly across the board on Friday as the very hot NFP gain with higher revisions for the prior
months served as a wake-up call that the Fed could be forced to raise interest
rates. The job gains have been much higher than the estimated breakeven rate
lately. The unemployment rate fell to an unrounded 4.29% vs 4.33% in the prior
month.
Following the NFP report, the market fully priced in a rate hike by
year-end with the total tightening standing at 26 bps right now. We can now
expect the Fed to drop the easing bias at the upcoming meeting, but the focus
will be mostly on the dot plot and forward guidance. Even though a rate hike is
now fully priced in, if the Fed endorses the market pricing, it will
effectively confirm that the bias has now shifted to tightening and might
trigger another rally in the greenback.
This week, the most important event is the US CPI report due tomorrow
(barring a surprising breakthrough in US-Iran negotiations). The question for
markets is now when and how many rate hikes the Fed might deliver by year-end.
Upside surprises would be seen as more hawkish and will likely give the US dollar
a boost. Conversely, lower than expected figures should alleviate some of the most
hawkish fears and might trigger a pullback in the short-term.
INR:
On the INR side, the
Rupee got a slight boost from the RBI decision as traders interpreted it as
more hawkish with RBI Governor Malhotra warning that if inflation were to
become generalised, the bank would need to raise interest rates.
The gains were
short-lived though as the very strong US NFP number boosted the US dollar
across the board. The escalation between Israel and Iran has also weighed on
the Rupee as oil prices jumped, but the quick de-escalation helped avoiding a
breakdown.
In the short-term,
the Rupee has been closely correlated with oil prices, so positive developments
on the US-Iran front should keep giving the INR a boost. Conversely, extended
stalemate or further escalations will likely keep weighing on the currency and
push it into new record lows.
The hawkish Fed
risk is now also a major driver. Therefore, strong US data or more hawkish than
expected FOMC are going to put further pressure on the Rupee as the US dollar
will likely extend gains.
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 the USD/INR pair into new highs.
USDINR TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDINR – daily
On the daily
chart, we can see that USDINR is consolidating just below the key 96.00 resistance. The sellers
will likely continue to step in around the resistance with a defined risk above
it to keep targeting new lows. The buyers, on the other hand, will want to see
the price breaking higher to pile in for a rally into new record highs.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDINR – 4 hour
On the 4 hour
chart, we can see more clearly the rangebound price action. We got a selloff on
Friday on a slightly more hawkish RBI decision but the losses were eventually
erased following the very strong NFP number and the Israel-Iran escalation.
From a risk
management perspective, the buyers will have a better risk to reward setup
around the major trendline, but we are unlikely to see such a pullback without
an RBI intervention, a soft US CPI or a surprising breakthrough in US-Iran
stalemate.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDINR – 1 hour
On the 1 hour
chart, there’s not much we can add here as the sellers will continue to step in
around the resistance to keep pushing into the major trendline, while the
buyers will look for a break to pile in for a rally into new record highs.
UPCOMING CATALYSTS
Tomorrow, we have the US
CPI report. On Thursday, we get the
latest US Jobless Claims figures and the US PPI report. On Friday, we conclude
the week with the Indian CPI report and the University of Michigan consumer
sentiment survey.
