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Busy Week Ahead: Union Budget, FOMC, ECB, BoE

* The five weeks rally in the rupee paused this week as the central bank and oil importers aggressively bought the dollar to fulfil their month-end commitments. The Indian rupee becomes the worst-performing currency among the Asian currencies as the domestic equities underperform following foreign fund outflows ahead of the union budget. In the week gone, spot USDINR gained half a percentage to 81.52

* Technical set-up for spot USDINR remains bearish as long as it trades below 82.20, the 50-day simple moving average, and on the downside, the recent bottom of 80.88 acts as good support

* The dollar index trimmed a modest weekly loss amid higher Treasury yields as traders await policy meetings next week and China’s return from a holiday break. The shift in correlation between the SPX index and the dollar index suggests the greenback is losing its haven status. The 30-day correlation between them is about 0.56, falling from 0.8 in October

* What to Watch: Next week is a crunch week. We have India’s union budget, decisions from the Fed, ECB, and Bank of England and the last US jobs report.

* Domestic traders will eye India’s budget for directional trade. The taxman is hoping for relaxation in tax by way of revision in tax bracket, and the industry expects relief packages ahead of the 2024 general election. While the government will try to cut the deficit and achieve growth.

* The Fed faces a dilemma at the Jan. 31-Feb. 1 FOMC meeting (Wed.). On the one hand, inflation data had come in softer than expected, and activity indicators have shown slowing momentum over the past month. On the other, financial conditions have eased as traders believe the Fed will soon switch to rate cuts. The FOMC is to raise the fed funds rate to a target range of 4.5%-4.75%

* The European Central Bank and Bank of England will take centre stage in the week ahead as both looks set to raise interest rates by 50 basis points.

USDINR

Technical Observations:

* USDINR Feb fut. resisted at 81.75, the 10 DEMA. It has been trading in a bearish sequence of lower tops and bottoms on the daily chart.

* Momentum oscillator, Relative Strength Index of 14 days placed below 50 indicates negative momentum. However, the MACD has given hope to bulls with a positive crossover.

* Long build-up has been seen with a rise in price, open interest and volume (Reference table on page 7).

* The bias is neutral to bearish for USDINR Feb. fut for next week. The pair has support at 81.03 and resistance at 82.50.

EURINR

Technical Observations:

* EURINR Feb. fut. is hovering near the recent high of 89.36. The pair has been consolidating between 88 to 89.35 sincemid-December.

* Relative Strength Index of 14 days is heading north and placed above 50 indicating a positivemomentum.

* MACD has given a positive crossover indicating a bullish trend.

* Long build-up has been seen with a rise in price, open interest and volume (Reference table on page 7).

* The view remains bullish for EURINR Feb. fut and a crossing of 89.40 will trigger fresh buying. It hasresistance at 90.50 and support at 88.

GBPINR

Technical Observations:

* GBPINR Feb fut. closed well above short-term moving averages. It has been trading in a bullish chart formation of higher highs and lows.

* Relative Strength Index of 14 days placed above 50 and heading north, supporting a bullish momentum.

* Long build-up has been seen as the rise in price, open interest and volume declined (Referencetable on page 7)

* We remain bullish for GBPINR Feb fut and expect 102.80 odd levels in coming months. The said view will be negated only below 99.50.

JPYINR

Technical Observations:

* JPYINR Feb fut oscillating near the short-term moving average of 10 DEMA and formed a Doji candlestick pattern indicating indecisiveness among the traders.

* Relative Strength Index of 14 days pierced above 50, indicating bullish momentum.

* Long buildup has been seen with a rise in price, open interest and volume (Reference table on page 7).

* The bias remains bullish for JPYINR Feb. futures as long as it trades above 62.50. In the near term, it has resistance at 64.40 and support around 62.70.

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