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Dollar Gains after Fed Clarifies on Taper Timing  - HDFC Securities 

* Rupee likely to open steady following regional currencies, however the session will remain volatile following strength in dollar index and risk-on sentiments. On Wednesday, Rupee declined the most among emerging-Asian currencies, weighed down by outflows related to stake sales. Outflows likely on account of Carlyle selling its stake in SBI Cards. Rupee depreciated 25 paise to 73.87 a dollar.

* Technically, spot USDINR has psychological resistance at 74 while recent bottom swing around 73.60 remains support.

* Indian bonds declined by the most in two weeks amid speculation that some traders booked profits after yields dropped to the lowest in more than two months. 10-year yields climbed by 2bps to 6.14% after falling to 6.12% on Tuesday, the lowest close since July 5. Traders look forward to the RBI’s Operation Twist-style debt operations on Thursday.

* Dollar can extend against Asian currencies post-Fed gain as traders digest what could be the end of the transitory inflation narrative. A mere 0.1% gain in inflation projection underpins the hawkish lean from the Fed and provide the dollar a lasting bid. The Fed raised its 2022 inflation outlook to 2.2% from 2.1%, and it is forecast to stay above 2% through 2024. After a choppy post-Fed trading session, the 5-year Treasury yield ended higher and that has been a key driver of positive dollar direction.

* appropriate to end tapering of a bond-buying program by the middle of 2022. EURUSD fell as much as 0.4% to 1.1685, the lowest since Aug. 20 and last it quoted at 1.1694. USDJPY rose 0.3% to the 109.88, the most since early June while Japan’s markets will be closed on Thursday for a holiday.

Technical Observations:

* USDINR September futures closed at 55 and 200 days moving average and there could be golden cross over in today’s session which gives thumbs up to bulls.

* The pair is having psychological resistance at 74 and trading above this level will open for 74.30 and 74.65 levels.

* On downside, it has support at 73.40, the recent swing low.

* Formation of higher top higher bottom confirmed on hourly chart after yesterday’s price actions.

* Momentum oscillators and indicators also moving north indication strength and positive momentum in the pair.

* USDINR September future could open flat and cross level of 74 will clear the pair for medium term trend reversal.

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