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Dollar Index setting up for another leg lower

Indian rupee registered second weekly gains amid weaker dollar and rebound in riskier assets. In the week gone, we have seen big gap between spot and forwards USDINR. Near month forwards premium reached to its highest level in more than two decades as massive dollar inflows towards an initial public offering skewed prices. But by the end of the week the premium were narrowed on natural price discovery.

Spot USDINR closed at 73.51, the weakest level since March 07, fell by 58 paise or 0.78%. Technical set-up turned bearish as the pair closed below short and medium term moving averages along with weaker momentum. The pair has support at 73.05 and resistance in the range of 74 to 74.20.

In a holiday truncated week with a slew of economic data domestically as well as internationally, market expected to trade volatile. On Wednesday, government will release inflation, industrial production and trade balance data which will direct the rupee trend.

India’s forex reserves show fourth week of gains for the week ending April 30. Forex reserves registered a growth of $3.913 billion to reach $588.02 billion during the week ended April 30, as per the latest RBI data.

Risk assets rallied after US job reports on Friday. Markets were upset by a disappointing jobs report, with payrolls up only 266,000 in April compared with a projected one million. The underwhelming figures may give a boost to President Joe Biden’s $6 trillion economic agenda and add legitimacy to the Fed’s belief there’s a long way to go to full employment. Meanwhile, the dollar, which historically strengthens in May, hasn’t gotten its seasonality bump, at least not yet. ICE dollar index, basket of six currencies, fell 1.15% to 90.23 level.

QE Progress: US Reserve Bank Credit declined by $17.5 billion from a week ago, leaving interest bearing assets at the Fed at $7.75 trillion. That’s up 23.1% on an annualized three-month basis, 19.6% year-over-year

The flows were mixed, though of reasonable size. Specs bought euros (3.8k), yen (7k), CAD (10k), AUD (2.9k) and kiwi (1.6k), while selling sterling (9.4k) and a bit of MXN. The aggregate dollar short rose by about $1.6 billion during the week.

USDINR

USDINR May _ futures retraced 50% Fibonacci retracement level and 50 days simple moving average support to closed at 73.66.

The pair marked second weekly gains eroded previous months gains to close at one month high.

Momentum oscillator, relative strength index of 14 days period headed southward _ indicating continuation of down trend.

MACD also moving towards zero line with negative cross over suggesting weaker trend.

We believe recent downward momentum in USDINR May futures might continue in coming week with downside support at 73.05 and resistance shifted to 74 odd levels.

EURINR

EURINR May Futures closed below 20 days simple moving average and has support at 88.70.

Momentum oscillator, relative strength index remains above 50 but the momentum weaken in the week gone with pair witnessing profit booking throughout the week.

MACD also given negative cross over and heading towards zero line suggesting weak trend.

Looking at the overall chart pattern formation, short term trend remains weak but medium term uptrend remains intact unless it breaks the level of 88 level.

We expect EURINR May futures expected to rebound in coming days with higher side resistance at 90 and support at 88.

GBPINR

GBPINR May futures has 50 days simple moving average support at 102.21.

Formation of higher top higher bottom suggesting continuation of up trend. 

Momentum oscillator, relative strength index of 14 days period placed below _ 50 _ indicating slower/weaker momentum.

MACD with histogram suggesting weaker trend.

We expect recent price correction is a profit booking in overall up trend.

GBPINR May future expected to hold support around 102 level and find resistance at 103.45.

JPYINR

JPYINR May futures turned weak on daily chart as short term moving average crossed medium term moving average downward.

The pair has broken the 20 and 50 days simple moving average support.

Momentum oscillators and indicators also turned weak on daily and weekly chart.

From the level front, JPYINR May futures has resistance in the range of 69.85 to 69 and support at 67.10 followed by 66.25.V

Above technical evidences indicating continuation of down trend in JPYINR May futures and breaking of 67 odd level opens for 66.25 while trading above 69.20 negate the said view.

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