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King Dollar Lose Some Steam European Peers Ramp-up Rate Hikes - HDFC Securities 

• Indian rupee heads for muted opening in line with the Asian peers. The rupee remained resilient so far this week in expectation of recovery and the central bank’s intervention. However, the momentum remains bearish following foreign fund outflows, risk-averse sentiments, higher crude oil prices and weaker progress of the monsoon. On Thursday, spot USDINR closed at 78.075 almost unchanged from the previous close. One may see some profit booking in the near term but the odds of 78.50 are very much on the card. The dollar is expected to remain in demand following the flight to safety in a rising interest rate scenario.

• Stocks fell in Asia on Friday amid fears of an economic downturn as monetary policy tightens to fight high inflation. Japanese shares slid about 2%, but China and Hong Kong managed to buck the regional trend with a steady open. US equity futures stabilized and made modest gains after the S&P 500 closed at its lowest since December 2020.

• The dollar is suffering its biggest two-day drop since 2020 as the Swiss franc, Sterling and Euro gain. Markets are finishing a week pounded by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike that energized the franc and the latest boost in UK borrowing costs.

• Euro gained after ECB President Christine Lagarde told euro-area finance ministers that the ECB’s new anti-crisis tool will kick in if borrowing costs for weaker nations rise too far too fast.

• Japan, in contrast, is expected to stick with monetary easing Friday. Japan’s 10- year bond yield hit 0.265%, the highest since 2016, challenging a curve control policy that seeks a cap of 0.25%

USDINR Technical Observations:

• USDINR June futures formed a Doji candlestick pattern indicating indecisiveness among traders.

• The pair is having support at 77.84, the middle band of the Bollinger band and resistance at 78.50.

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

• Relative Strength Index of 14 days exited from overbought zone and given negative crossover indicating the near term weakness.

• MACD flatten along with negative histogram on daily chart indicating consolidation in the pair.

• We remain neutral to bullish on USDINR June futures and expect the rangebound trade within 77.80 to 78.10

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