BY Dilip Parmar
The Indian rupee notched the best week since 3 March following the weaker greenback and risk-on sentiments. All Asian currencies gained against the US dollar in the week gone. However, the rupee underperforms among the region on weekly as well as month to date amid higher dollar demand from importers.
Short-term Outlook
Spot USDINR formed the Bullish Engulfing pattern on Friday, representing a change of sentiments. The pair has closed below 200 DMA but it has remained within 2 standard deviations of 20 DMA since February. We expect the pair to further consolidate between 81.70 to 82.75 and expect bargain buying near the lower band.
The ICE Dollar index registered its worst week in eight months following a fall in US yield after a surprise drop in monthly core inflation, the lowest since 2021, which led traders to abandon their previous idea that there might be two more rate increases still to come. The dollar fell and everything else climbed. The Japanese Yen and Euro gained the most against the US dollar among the major currencies. Elsewhere, a gauge of EM currencies saw its best week since January. Oil notched its third weekly advance, but fell on Friday as traders locked in profits and the commodity’s 200 DMA again provided a barrier to further advances.
As per the CFTC data, the flow was mixed during the week in the FX. Speculators sold Euro, Swiss franc and Australian dollar while gone for a long pound. However, they held a net short dollar position on aggregate of $12.5 billion.
What to Watch
China’s economy will be front and centre in the week ahead, starting with the People’s Bank of China setting its one-year rate on Monday. Later that day second-quarter GDP and June activity data. The UK and EU inflation report due Wednesday is set to be the week’s main event as it will help traders and investors fine-tune their bets on how far the Bank of England and ECB will raise interest rates after a strong repricing over the past week.
(Dilip Parmar is a Research Analyst at HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)