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Dollar Gains as Fed Stays Hawkish Ahead of Holiday

? In the week gone by, the rupee chocked the first weekly decline in four amid weaker regional currencies and foreign fund outflows. Spot USDINR gained 88 paise to 81.69 while the dollar index was up 0.6% to 106.93.

? Stocks fluttered higher to wrap up a low-voltage week that saw the Dow Jones finish virtually unchanged while the Indian benchmark Sensex closed with a minor loss. The dollar strengthened following US Treasury yields which continued to climb a day after hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation.

? USDINR Outlook: Indian rupee is expected to trade left in the coming days following strength in the dollar index and weaker regional peers. However, the loss could be limited following a fall in crude oil prices and foreign fund inflows. Technically, spot USDINR could add gains in the coming days but the trend has turned bearish with lower top and bottom formation on the daily chart. The pair is expected to trade in the range of 82.40 to 81.30 in the next few days.

? Fed Rate Watch: Markets are a bit muddy as equities, dollar and yield all are rising amid mixed economic data. Theoretically, lower rates generally mean higher stocks and lower dollars but slower spending will mean lower earnings and haven demand for dollars.

? Money-market derivative traders continue to price in that the Federal Reserve will reverse course and begin cutting rates in the later part of 2023 despite a fresh round of hawkish rhetoric this week from Central Bank officials.

? CFTC Position: In FX, specs were dollar sellers against just about every currency on the board. They bought euros (5.1k), yen (9.4k), sterling (6.9k), CAD (5.5k), AUD, (1.9k), and MXN (8.2k). The aggregate dollar position flipped from long $1.4 billion to short $1.4 billion during the week.

? What next: Low trading activity, modest share gains and the upcoming US holiday are helping send implied volatility broadly lower. An index of one-week dollar implied vol falls to 10.3%; compares to 10.6% for 3 months and a nearly unchanged 10.1% for the one-year.

USDINR

Technical Observations:

? USDINR Nov. fut rebounded in the week gone erasing the loss of Nov.11. It has resistance around 82.40, the horizontal trendline and middle band of the Bollinger Band.

? Momentum oscillator, Relative Strength Index of 14 days heading north and currently placed below 50.

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

? We expect short covering bounce to continue and face stiff resistance at 82.40 while on the downside 80.60 remainssupport.

EURINR

Technical Observations:

? EURINR Nov. fut contract formed a Doji Candlestick pattern at the upper band of the Bollinger Band indicating a short-termreversal.

? Relative Strength Index of 14 days is hovering near 70 indicating overall positive momentum.

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

? The medium-term view remains bullish while short-term profit booking can’t be ruled out. The pair is having support around 83 and resistance at 85.70.

GBPINR

Technical Observations:

? GBPINR Nov fut contract getting resistance at an upper band of the Bollinger Band.

? Relative Strength Index of 14 days heading north and currently placed at 66 indicating positivemomentum.

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

? We expect short-term profit booking while the medium-term trend remains bullish amid higher top and bottom. It has resistance at 98.70 and support at 94.75.

JPYINR

Technical Observations:

? JPYINR Nov fut contract has started forming higher top and bottom on the daily chart. It has given inverse head and shoulder pattern breakout with the pattern target coming around 60.50.

? Relative Strength Index of 14 days currently placed at 70 and flattening indicating near-term consolidation.

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

? The bias remains bullish for JPYINR Nov. fut and we expect 60.50 while on the downside it could find support around 57.30.

Observations:

• Maximum pain is at 83 strikes with 83 CE OI 4.60 lakh and 83 PE OI 1.42 lakh

• In the week gone, 82 CE had addition of 91 thousands and 81 PE 1.19lakh contracts.

• Call writers were active at 82.75 and 83 strikes.

• Put writing seen at 81 strikes.

• The put call ratio rose to 0.79 from previous week’s 0.77.

• Looking at the option distribution, USDINR Nov. futures could trade in the range of 81.50 to 82.75

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