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Dollar losses will be Emerging markets gain

* The falling dollar will be a gift to emerging markets. Dollar had its worst session since May amid a muted reaction in Treasury yields and as much of the expectations for rate hikes have been priced in. The U.S. consumer price index climbed to 7%, the fastest pace since June 1982, in line with forecasts. The tumble in the U.S. currency is happening even as the Fed prepares to raise interest rates, suggesting that at least a handful of hikes this year are priced in.

* Meantime, capital flows into emerging markets are climbing from 2021’s lows in December. That bode well for emerging markets currency as well as equities. An index of emerging currencies is at the highest since June. • Asia stocks were mixed Thursday after a U.S. inflation print intensified calls for interest-rate increases as soon as March.

* Rupee expected to open slightly higher following overnight weakness in dollar index and stronger risk assets while weaker economic data could weigh on rupee. On Wednesday, spot USDINR ended almost flat to 73.92. The setup remains bearish and breaking of 73.80 will lead to fall towards 73.50 while resistance has been shifted to 74.30.

* India consumer price inflation rose to 5.6% year on year in December from 4.9% in November, compared with consensus of 5.8%. Given the prospect of a further pick up in inflation, we expect the RBI to start raising the reverse repo rate at its upcoming meeting. Meanwhile, industrial production for the month of November grew by 1.4% as compared to -1.6 % in the same month last year. IIP surged 3.2% in the month of October.

Technical Observations:

* USDINR January futures retraced to 73.88, the 76.4% of level adjoining low of 73.10 to 76.46.

* The pair has been trading well below major moving averages.

* Momentum oscillator, Relative Strength Index of 14 days heading south and currently placed in oversold zone.

* MACD has been placed below zero line heading further lower indicating bearish trend. 

* Traders might have cut the short positions as volumes and open interest were declined.

* USDINR January futures expected to trade lower and breaking of 73.88 put addition pressure towards 73.60 while on higher side 74.50 becomes resistance.

USDINR January Daily Chart

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