FUNDAMENTAL
OVERVIEW
USD:
The US dollar weakened across the board on Thursday after Trump cancelled
the planned attacks on Iran and announced a deal to be signed in the following
days. As a result, Fed rate hike expectations got pared back immediately with
the market now pricing in 16 bps of tightening by year-end compared to 24 bps
before the deal announcement.
In the short-term, the focus will be on this new development as oil prices
fall and inflation concerns ease. On Wednesday, we have the FOMC rate decision
where the Fed is expected to keep interest rates unchanged and drop the easing
bias. The Fed will also release the latest economic projections and the dot
plot.
The market might forgive some hawkish tone from the Fed decision in light
of this new development but not if the central bank places more weight on economic
strength rather than easing inflation expectations.
Looking ahead, oil prices will likely continue to fall and might reach
pre-war levels. The risk then is that the negative supply shock turns into a
positive demand shock that boosts economic activity further requiring rate
hikes anyway. For now, the markets can celebrate.
INR:
On the INR side, the
Rupee rallied strongly on Thursday following Trump’s US-Iran deal announcement and
extended the gains as expectations for the end of the war grew.
As noted in
previous occasions, the Rupee has been closely correlated with oil prices, so
positive developments on the US-Iran front kept giving the INR a boost, while
negative ones weighed on it.
Oil prices
continue to fall pretty quickly with the deal expected to be signed on Friday
and the Strait of Hormuz getting reopened shortly. This should keep supporting
the Indian Rupee in the short-term.
The hawkish Fed
risk is now also a major driver. Therefore, a more hawkish than expected FOMC on
Wednesday could put pressure on the Rupee as the US dollar will likely rally
across the board.
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 dropped into the trendline and probed below it on US-Iran deal
optimism. The path of least resistance should have now switched to the downside
in the short-term as oil prices continue to ease. The first natural target
should be the 94.00 handle, so the sellers will look for opportunities on the lower
timeframes to keep pushing into new lows.
USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDINR – 4 hour
On the 4 hour
chart, we can see more clearly selloff into the trendline with the price now pulling
back a bit. There’s not much we can add here but as long as the price stays
below the trendline, we can expect the sellers to keep pushing into new lows.
USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDINR – 1 hour
On the 1 hour
chart, we have a minor downward trendline defining the bearish momentum. The sellers
will likely step in around the broken major trendline and the minor trendline to
keep pushing into new lows, while the buyers will want to see a break above the
minor trendline to pile in for a rally into the 96.00 resistance next.
UPCOMING CATALYSTS
On Wednesday,
we have the FOMC rate decision. On
Thursday, we get the latest US Jobless Claims figures.
