- The Indian Rupee weakens during Thursday's early European session.
- Strengthening US Dollar and rising bond yields could limit the INR's upside.
- All eyes are on the US Federal Reserve's interest rate decision set for Thursday.
The Indian Rupee (INR) faces downward pressure on Thursday, with the US Dollar (USD) rallying and rising bond yields following Donald Trump’s victory in the US presidential election. Market participants expect the INR to trade within a narrow range, as the Reserve Bank of India (RBI) is likely to intervene by selling USD to prevent excessive volatility.
Foreign fund outflows, coupled with ongoing bond and forex market volatility, could add further selling pressure on the INR in the near term. Investors are closely eyeing the US Federal Reserve's interest rate decision on Thursday, with expectations for a 25 basis point (bps) rate cut. Additionally, the release of the US weekly Initial Jobless Claims will also be in focus.
Daily Market Digest: INR Weakens Ahead of Fed Meeting
- The INR has been trading in a narrow range over the past two years, and many analysts consider it slightly overvalued. "Given the rising dollar index and depreciation of other Asian currencies, the rupee is also likely to face downward pressure," said Gopal Tripathi, Head of Treasury and Capital Markets at Jana Small Finance Bank.
- The HSBC India Services PMI increased to 58.5 in October, up from 57.7 in September, surpassing the preliminary estimate of 58.3.
- Pranjul Bhandari, Chief India Economist at HSBC, noted that India's services sector saw strong expansions in output, consumer demand, and job creation in October.
- A majority of economists polled by Reuters expect the RBI to cut rates by 25 bps to 6.25% in December.
- Financial markets are pricing in nearly a 98% chance of a 25 bps rate cut this week, with a 70% probability of a similar move in December, according to CME’s FedWatch tool. However, traders have started to reduce their expectations for further rate cuts next year.
Technical Outlook: USD/INR Maintains Constructive Bias, RSI Signals Overbought Conditions
Technically, the bullish outlook for USD/INR remains intact, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) is above 73.45, indicating overbought conditions. This suggests the possibility of short-term consolidation before any further upward movement in the pair.
The immediate resistance level for USD/INR is near the upper boundary of the ascending trend channel at 84.30. A break above this level could see the pair move towards 84.50, followed by the psychological level of 85.00.
On the downside, initial support for the pair lies between 84.05 and 84.10, near the high of October 11 and the lower limit of the trend channel. A breach of this support could open the door for a move towards 83.80, coinciding with the 100-day EMA. Further downside could target 83.46, the low of September 24.
