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Dollar rebounds ahead of inflation data 

Rupee likely to open slightly lower following overnight risk aversion and rebound in dollar index. On Wednesday, spot USDINR closed with a paise loss to 73.34 as virus cases declines. The exporters were seller in the market following higher forward premiums. The rising forward premia makes the carry trade attractive and this would lead to continuation of strong inflows which again leads to further currency appreciation. In turn, RBI will manage the imported inflation after recent surge in metal and oil prices USDJPY* 108.83 108.64 0.19 0.17% ‘ 

Spot USDINR is expected to consolidate in small range of 73.20 to 73.50 ahead of key events ahead of Thursday’s holiday.

The focus will remain on today’s output and inflation data scheduled to be released at 5:30IST. Forecast is suggesting sharp surge in industrial activities in March while inflation figures for April may cool down following slower demand amid lockdown.

Asian stocks are set for a weak open after a selloff in U.S. equities, amid ongoing concerns that faster inflation as commodities advance could pose a test for the recovery from the pandemic. The S&P 500 dropped for a second day following a record high Friday. Treasury yields rose and the dollar traded near the lowest levels of this year. 

The dollar’s bear run since the beginning of April is running out of steam with risks skewed towards it grinding higher in the near-term. It is finding support from the reluctance of U.S. yields to push lower despite last week’s disappointing employment data, which has failed to assuage investors inflation fears with the U.S. 10-year breakeven rate pushing higher. Dollar traders will be watching what yields do after Wednesday’s release of U.S. inflation which is forecast to jump to 3.6% y/y in April from 2.6% prior.

USDINR

USDINR May futures consolidated in small [om 73.5375 -0.018 M73.6658 © 734788 | eo 75.0000 range after doji formation.

It has been stuck between 50 and 100 days simple moving averages.

Momentum oscillator, relative strength index of 14 days period is placed at 39 level with downward momentum.

MACD is pierced below zero line and heading lower indicating weaker trend. 

Short term short covering bounce can be seen above 73.70 level while trend remains down and breaking of 73.45 will open for 73 odd level.

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