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Forex Markets Subdued Before Fed Decision -  HDFC Securities 

• The Indian rupee is expected to start on a flat note following global cues. The forex markets remained calm ahead of the Federal Reserves policy decision later tonight.

• On Tuesday, spot USDINR fell 3 paise to 78.01 in a lacklustre trading day. The pair has made a life low of 78.28 on Monday amid foreign fund outflows and risk-averse sentiments. The pair is expected to consolidate in the range of 77.70 to 78.30 before heading north.

• Asian equities are trimming opening losses after better-than-expected Chinese data. US futures are edging about 0.5% firmer, while Treasury 10-year yield is about 5bps lower near 3.42%. In a repeat performance of Tuesday morning’s price action, the dollar is stronger against most FX majors.

• On Tuesday, the US dollar climbed, extending its rally for a fifth consecutive day, having the best 5-day run since March 2020, as the focus remains on the Federal Reserve’s rate-hike decision. Uncertainty is elevated heading into the Fed decision: increments of 50 basis points, 75 basis points and even 100 basis points have all been chewed over by commentators. While traders largely pricing in that the US central bank will hike its benchmark rate by 75 bps, the biggest since 1994.

• The Japanese yen fell to its lowest level against the dollar in 24 years as the widening gap between the BOJ and the Fed sends investors to the US. GBPUSD sinks to 1.1980 extending declines for the fifth session, at the lowest since March 2020.

• China's economic activity improved last month as Beijing eased Covid-19 control measures to support growth, according to official data released Wednesday. Industrial production rose 0.7% in May from a year earlier, improving from a 2.9% decline in April and better than the 1% drop expected. Retail sales, a key gauge of Chinese consumption, fell 6.7%, compared with April's 11.1% drop, the National Bureau of Statistics said.

USDINR Technical Observations:

• USDINR June futures retraced and came closed slightly above upper band of the Bollinger Band. It is having support at 77.78, the middle band of the Bollinger.

• Derivative data indicating short buildup as price has fallen while open interest risen.

• The pair resisted at upper trend line of rising channel around 78.40.

• Relative Strength Index of 14 day oscillating around overbought zone indicating consolidation in up trend. • MACD flatten on daily chart indicating consolidation in up trend.

• USDINR June futures is expected to trade positive as long as it trades above 77.70 while on the higher side 78.40 remains hurdle.

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