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Rupee Gyrating Around Psychological Level Of 75

* RBI come up with a fresh defense for the struggling rupee, announcing a raft of measures to boost foreign-exchange inflows and stem a rout in the local currency. The steps include doubling borrowing limits for companies from overseas to $1.5 billion during a financial year, temporarily removing any interest-rate ceiling for banks to attract deposits from non-residents, and liberalizing rules for foreigners to invest in local currency bonds, the Reserve Bank of India said in a statement Wednesday.

* The steps taken by RBI could definitely have a short-term psychological positive impact on dollar inflows but the worries remained intact as long as capital outflows continue and the trade deficit widens. On Wednesday, spot USDINR closed at 79.30 with a loss of 5 paise, before RBI’s measure. There is a chance we could open lower in the spot market but on the derivative market, the opening could be flat. Overnight fall in crude oil prices and recovery in risk assets will further push the pair lower intraday. Technically, the pair is having support at 78.90 while resistance remains at 79.40.

* Indian government bonds rallied and swap rates fell amid optimism that a slide in crude oil prices will ease inflationary pressures. The rupee also strengthened. The 10-year benchmark yields declined 9bpsto 7.30%, the lowestsince May 26.

* A gauge of the dollar’s strength held gains after rising to a fresh two-year high in response to data that showed growth in the US services sector eased in June to a more than two-year low. Persistent concerns about an economic slowdown are spurring traders to flock to haven assets like the greenback. DXY crossed 107 mark with FOMC minutes seen as hawkish while U.S. labour market remained tight. Oil pricesslumped below $100/bbl as global economic slowdown joinssupply woes.

Technical Observations:

* USDINR July futures formed an inside bar for another day. Broadly, the pair consolidated between 79.54 to 79.10 range in the last six days.

* The pair has been sustaining well above the 13-day exponential moving average with a higher top higher bottom sequence indicating continuation of an up trend.

* However, the Relative Strength Index of 14 days signaling exhaustion in positive momentum as it has been exited from an overbought zone and given the negative crossover to average.

* Derivative data indicating long unwinding with fall in price, open interest and volume.

* USDINR July futures could trade witness selling on a break of 79.05 while 79.55 remains near term obstacle.

USDINR July Daily Chart

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