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Dollar Rally Pauses as Pound Recovers

• Indian rupee could bid well following a pullback in the dollar index and stronger regional peers. The improved risk appetite damped demand for haven dollar assets. The pound extended a rebound from a two-year low as incoming UK Prime Minister Liz Truss’s planned fiscal measure on energy bills buoyed sentiment toward the currency. The euro also found some relief after earlier hitting a two-decade low on Europe’s energy woes.

• On Monday, spot USDINR traded in the narrow range before closing at 79.85 with gains of 5 paise. India’s central bank is in the currency market almost every day with the twin objective of curbing volatility and anchoring expectations for rupee depreciation. Today, the forward markets indicate USDINR is likely to open flat and could show weakness as the day progresses. The pair is having support at 79.70 and resistance at 80.

• Stocks in Asia turned mixed, while US equity futures rose on Tuesday amid a dip in the dollar, as sentiment continued to be tested by central banks tightening monetary policy and Europe’s energy crisis.

• Elsewhere, crude has climbed to about $89 a barrel after OPEC+ agreed to cut 100,000 barrels a day in October.

• The Chinese central bank (PBOC) is digging into its toolkit to rein in Yuan depreciation by stronger fixing and lowering the forex deposit RRR to 6% from 8% to increase the onshore supply of dollars. The next they may do could be to raise reserve requirements for forwards to 20% to defend the level of 7. Officials in China also plan to speed up stimulus, stepping up support for an economy saddled with Covid lockdowns, a property slump and powershortages.

Technical Observations:

• USDINR September futures is back to neutral as it has been oscillating around a short-term moving average of 13 and a 21-day exponential moving average.

• The pair is having strong support at 79.66, the 55-day exponential moving average.

• Momentum oscillator, Relative Strength Index of 14 days period has been placed slightly above 50 but the direction remained unclear indicating sideways momentum.

• Short build-up has been seen with a fall in price and a rise in open interest while volume remained dried amid US Holiday.

• USDINR September futures is expected to trade lower in today’s trade with the downside support at 79.66 and resistance at 80.20.

USDINR September Futures Daily Chart

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