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HDFC securities Retail Research: Currency Monthly

All Eyes will be on RBI Monetary Policy

* Indian rupee started the year on the front foot by registering a gain in January month, the strongest January month after 2016. The lower commodity prices, the expectation of interest rate pick out and the rebound in risk assets followed by foreign fund inflows.

* Spot USDINR tumbled 0.98% or 81 paise to 81.93. Technical set-up remains bullish as long as it trades above 80.90 while on the higher side, one should eye on 82.70 and 83.30.

* Among the many mystifying things that happened in the past few weeks the focus will now be on the RBI monetary policy decision which will likely deliver another rate hike on Feb.8 butsignal that the cycle ends are near. The consensus estimate is also a 25bp hike. The RBI’s commitment to withdrawing stimulus and its focus on bringing down elevated core inflation support a hike.

* The dollar weakened against the major currencies in the month gone as markets pricing in dovish fed going ahead. However, it is too early to say as there will be geopolitical uncertainty and the decision of the FOMC will be data-dependent. The dollar index marked the fifth month of decline in January and registered a nearly 12% drawdown. We expectsome relief rallies in February before marching towards 100 asthe overall trend isstill bearish.

* Recent Fed meetings saw a slower pace ofrate hikes butsignalled more to come. Markets turned a dovish ear to that hawkish signal- with yields falling and stocks rising. The January jobs report showed the labour market was still hot underscoring riskstomarket expectations of a Fed pivot.

USDINR Technical Observations:

* USDINR Feb fut closed above the short-term moving averages on the weekly chart.

* It has been broadly trading in the range of 80.90 to 83.30.

* Momentum oscillator, Relative Strength Index (RSI) 14 weeks placed above 50 and heading north suggests bullish momentum.

* MACD has been given a negative crossover and heading towards the zero line suggesting a weak trend.

* USDINR Feb fut is expected to trade between 81 to 82.90.

USDINR Weekly Chart

EURINR Technical Observations:

* EURINR Feb fut heading north with higher tops and bottoms.

* The pair has support at 87.54, the 10 Week Moving average.

* Momentum oscillator, RSI of 14-week has been strengthening and is about to enter an overbought zone suggesting bullish momentum.

* MACD has been heading higher & the MACD histogram forms bullish blocks indicating a positive trend.

* EURINR Feb Fut is expected to trade higher and any dips toward 87.50 can be bought for a target of 91 keeping a stop loss below 86.50.

EURINR Weekly Chart

GBPINR Technical Observations:

* GBPINR Feb fut getting resistance around 102.5 the recent swing high.

* Momentum oscillator, RSI has given negative divergence on the weekly chart.

* MACD is placed above the zero line but the histogram forms smaller blocks indicating a weak up trend.

* Looking at the above technical evidence, we believe one should book profit on the long side and wait for correction the re-enter.

* It has resistance at 102.50 and support at 98.50.

GBPINR Weekly Chart

JPYINR Technical Observations:

* JPYINR Feb fut took support at 10-week moving average.

* The pair closed at the level last seen in March 2022.

* Momentum oscillator, Relative strength index of 14 weeks heading north and placed above 50 indicating a positive momentum.

* MACD has been placed above the zero line and the gap between MACD and MACD average widened in the last couple of weeks indicating a bullish trend.

* Near-term bias for JPYINR Feb fut remains bullish as long as it trades above 62. It has resistance at 67.70.

JPYINR Weekly Chart

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