By Dilip Parmar
The Indian rupee retreated in the week after marking two weeks of gain following month-end dollar demand and profit booking by the foreign institutions in the equities. The strength in the dollar index after FOMC and weaker Asian currencies also weighed on the local unit. Going ahead, the focus will remain on the dollar flows and price action in regional currencies.
The dollar index gained for the second week in a trot following short covering after recent economic data which indicates the rate is yet to pick up. The ICE dollar index gained 0.55% to 101.62. It has been heading towards 102.40, the 100 SMA but the direction remained bearish amid lower tops and bottoms on the major time frames.
Dollar Positioning
The latest snapshot of FX positioning and sentiment shows little change overall in the market’s broader view of the USD in the week through Tuesday. Aggregate positioning among Speculative Accounts showed a moderate increase in USD shorts of $727mn, taking their total bearish position to $20.6bn, the largest bearish bet since March 2021.
What to Watch
It’s a big week ahead on the economic calendar. While the Fed and the ECB are now in a holding pattern until September, economic indicators will influence sentiment toward central bank monetary policy. It is a quieter week for the Japanese Yen after a highly volatile week.
For dollar, US ISM Manufacturing PMI for July on Tuesday, ISM Non-Manufacturing PMI numbers and jobless claims on Thursday and the all-important US Jobs Report will wrap up a busy week on Friday.It’s a busy start to the week for the EUR, with German retail sales, Eurozone inflation, and euro area GDP numbers kickstarting the week.It is a big week for the Pound, with the Bank of England delivering its interest rate decision on Thursday. The markets are betting on a 25-basis point rate hike and forward guidance for one more hike before the year.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)