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Dollar Bids Ahead of June FOMC

Indian Rupee consolidated throughout the week with lower volume and volatility in absence of fresh triggers. Continuation of foreign fund inflows and decline in virus cases well supported the domestic equities which is trading near all-time high while rebound in dollar index weighed on rupee. There are three IPO’s line-up this week which means more inflows to come that may add strength in rupee. Rupee expected to come out of 72.70 to 73.30 range in coming weeks and we could see a clear trendy market once the central bank’s (FOMC & BoJ) policy decision clears.

In the week gone, spot USDINR gained for the second week in row by adding one tenth of percentage points to 73.08 level. We feel the pair may trade in tight range of 72.70 to 73.30 until strong trigger comes which might be the US Fed policy decision.

India’s foreign exchange reserves rose to $605 billion for the week ended June 4, from $598 billon the week before. In absolute terms, India has the fifth largest pool of forex reserves.

From the data backet, India’s CPI likely to rose further above central bank’s target level in May, lifted by stronger core inflation and food and fuel inflations. This won’t make hawkish response to RBI as it still remains below upper band and better monsoon will help in lowering food inflation.

Despite higher-than-expected US CPI, in the week gone the forex market seemed to finally throw in the towel and accepted the Fed’s vision of transitory inflation. The greenback’s advance comes by earmarking usual short covering and the expiry of large positions ahead of this week’s FOMC meeting. A rise in US Treasury yields also helped the dollar to rally in Friday. Dollar Index is up 0.53%, most since June 3, and headed for first close above its 20-day Bollinger upper band since March 8. The abnormally low level of the band-width ahead of Friday’s session suggests realized volatility may turn higher.

CFTC: In FX, the most notable flows were on crosses, with selling of AUD (7.5k) and buying of yen (9.8k). Specs also bought sterling (3.6k) while selling CAD (3.5k) and EUR (2.1k). The aggregate dollar position was little changed. The overall dollar short rose by $176mn (a fifth of last week’s $955mn increase) to total $17.9bn.

USDINR

USDINR June futures formed inside bars on daily chart and resisted at 73.24, the 21 DEMA. Once the level of 73.24 crosses it can head towards 73.74, the 100 days simple moving average.

The price and volume action remains listless in last five days.

Momentum oscillator, Relative strength index of 14 days period heading northward but remains in below 50 level suggesting consolidation.

The above technical evidences do not give any clear trend indication.

We remain neutral in USDINR June futures and wait for range breakout of 73.25 and 72.70.

EURINR

EURINR June futures closed at 50 days simple moving average support. However, the pair is broadly trading in the range of 88.50 to 90 since last one month, without any clear trend.

Momentum oscillator, RSI of 14 days period placed below 50 level with negative cross over.

Momentum indicator, ADX also flatten and weaken on daily chart.

Looking at the above technical evidences, we remain neutral to bullish in EURINR June futures in short term while medium term trend remains bullish.

Swing trading can use the band of 88.50 to 90 for trading by keeping small stop loss above price band.

GBPINR

GBPINR June futures has been forming lower high and higher highs.

The pair has been swinging near short term moving averages indicating near term consolidation.

It has been holding support of 100 days simple moving average.

Momentum oscillators and indicators placed above breakeven line indicating consolidation in bullish trend.

GBPINR June futures expected to trade in the range of 104.25 to 102.46 range with bias remaining bullish till it holds the support of 102.46.

JPYINR

JPYINR June futures formed weekly doji candlestick pattern indicating indecisiveness.

The pair has been trading well below short term moving averages with short period average placed below medium term period average suggesting continuation of weaker trend.

Momentum oscillator, relative strength index of 14 days placed at 44 odd level and heading northward indicating continuation of weaker momentum.

We remain neutral in JPYINR June futures and once the level of 66 breaches it starts moving towards 65, 200 weeks moving average. The pair is expected to face resistance at 67.55, 50 days simple moving average.

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