Indian Rupee weakness looks to be resuming after a key technical breakout. What’s next?

FUNDAMENTAL
OVERVIEW

USD:

The US
dollar is now trading higher against most major currencies after another slate
of strong US data this week and the US-Iran tensions potentially supporting the
greenback. The market is still pricing 57 bps of easing by year-end but the
crowded bearish positioning on the US dollar requires strong reasons for the
greenback to keep falling.

There’s no
such reason right now as we are seeing the US data surprising to the upside.
Fed speakers are also sounding like the bar for further cuts was set high and
they would need very clear improvement on the inflation side to consider a rate
cut.

Today, we
get the Flash US PMIs and the US Q4 GDP. The greenback might get another boost
from strong data, especially on the PMIs front. We have also the potential US
Supreme Court decision on Trump’s tariffs. If the Court were to rule against
the tariffs, we might see the US dollar weakening on positive global growth
expectations.

INR:

The Indian Rupee remains
on a bearish structural trend against the US Dollar, but the recent positive
developments on the tariffs and inflation front gave the INR a short-term boost.
In fact, the US and India finally reached a trade deal and President Trump
announced that he will lower the tariffs from 25% to 18%.

The RBI held
interest rates steady at the last meeting and last week we saw inflation rising
to 2.75% in January from 1.33% in December. This should push rate cuts aside
for the time being as inflation is now inside the 2-6% tolerance band of the 4%
target.

The downtrend in
the Rupee seems to be resuming as the good news got priced in. The focus has
now turned to the US Supreme Court. If the US Supreme Court rules against
Trump’s tariffs we could see another strong rally in the Indian Rupee. On the
other hand, if the Court were to keep the tariffs in place, nothing should
change as the market has already adjusted to the tariffs.

USDINR TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily
chart, we can see that USDINR has been consolidating at the lower bound of the channel as the
dip-buyers continued to step in to position for a rally into the upper bound of
the channel around the 93.00 handle. The bullish momentum now looks to be
gathering pace as we got a key technical breakout on the lower timeframe. The
sellers will want to see the price breaking below the lower bound of the
channel to open the door for new lows with the 89.50 level as the first target.

USDINR TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour
chart, we can see that the price broke above the key resistance zone around the
91.00 handle. The buyers piled in on the breakout to target the 93.00 handle
next. If the were to retest the resistance now turned support, we can expect
the buyers to continue to step in with a defined risk below the support to keep
pushing into new highs. The sellers, on the other hand, will want to see the
price falling back below the support to pile in for a drop into the lower bound
of the channel targeting a breakout.

USDINR TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour
chart, there’s not much we can add here although we can see that we have a
minor upward trendline defining the bullish momentum. If we get a pullback into
the support, the buyers might want to place their stop loss below the trendline
as the pullback could extend into it. The sellers, on the other hand, will
likely pile in on every break lower to target the lower bound of the channel.

UPCOMING CATALYSTS

Today we conclude the week with the US Q4 GDP, the US PCE price index for
December, the US Flash PMIs and the potential US Supreme Court decision on
Trump’s tariffs.