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Dollar Declines on Cooler-Than-Expected US Inflation

• Indian Rupee could start right following overnight weakness in the dollar index after lower than expected retail inflations. The surge in risk-on moods and foreign inflows are likely to add strength to the rupee. The forward markets indicate 30 paise lower opening for spot USDINR at domestic bourses. The pair has been in a consolidation zone with downside support at 78.90 and resistance at 79.85.

• On Wednesday, spot USDINR traded in a narrow range of 79.41 to 79.60 before closing at 79.52. Looking at the regional currencies, risk-on moods and foreign fund inflows, we believe the pair could trade lower and an intraday bounce will be used as a selling opportunity. The pair is having support at 79.10 and 78.90 while 79.67 remainsresistantfor the day.

• Stocks extended a rally Thursday following softer-than-expected US inflation data, which stoked speculation that the Federal Reserve could pivot to a shallower pace of interest-rate hikes.

• A key gauge of the dollar slumped Wednesday as traders reacted to US inflation that decelerated in July by more than expected, relieving some of the pressure on the Federal Reserve to continue aggressively hiking interest rates. Dollar Spot Index fell to 104.64 in overnight trade, its biggest decline since the shock of Covid hit markets in March 2020, but erased some losses and last traded at 105.37.

• While the greenback looks unstoppable following hawkish central bank and dollar tighter liquidity, historical analysis suggests that once fundamentals turn, the retracement can be significant. This is probably because a long period of appreciation attractstrend followers and a large buildup in positions.

USDINR

Technical Observations:

• USDINR August futures facing stiff resistance at middle band of the Bollinger band.

• The pair is having upward slopping trend line support near 79.

• The pair is meandering around 13 days exponential moving average since last four days.

• Relative Strength Index of 14 days oscillating around 50 indicating consolidation in near term.

• MACD is placed above zero line but the direction remained down following negative cross over and histogram bars.

• Long unwinding has been seen with decline in the price and the open interest along with volatility.

• USDINR August futures could consolidate in the range of 79.20 to 79.70.

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