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RBI policy and inflows will set the stage for Rupee  - HDFC Securities

Indian Rupee depreciated for the second consecutive months even after stronger dollar inflows and positive risk sentiments. However, the range remained tight following weaker dollar index and rebound in economic activities.

The primary market inflows were absorbed by the central banks to curb unwarranted volatility in forex market. Spot USDINR ended the month with gain of 9 paise to 74.42. The last 10 year seasonality patterns of rupee for August remains highly volatile, with average depreciation of more than 2%.

But looking at the IPO seasons, the inflows will continue in August and central bank buying dollar will make another month for range bound action. Near term focus will be on the monetary policy committee's meeting outcome on Aug. 6 for cues on liquidity withdrawal in the domestic market. Though, market don’t expect any change in rate but will look for future course of action after surge in crude oil and inflations.

The worries over third wave of Covid19 might be highlighted, looking at global trends. Indian economy expected to show rebounded in June after the setback caused by the second wave of covid19. Looking ahead to July, high frequency data show a rebound in activity, but slower than anticipated relaxation of lockdown. India’s foreign exchange reserves fell from a record high to $611.149 billion after declining $1.581 billion in the week ended July 23, showed data released by RBI.

India’s fiscal deficit for the first three months of the fiscal year was at Rs.2.74 trillion ($36.8 billion), compared with a budget estimate of Rs.15.1 trillion. As per the CFTC data, dollar buying continued, taking the aggregate long up to $4.6 billion, a rise of some $2.4 billion on the week.

Flow was most notable versus the euro (7.7k), yen (4.2k), CAD (7.5k), AUD (3.7k) and sterling (4.2k), all of which were sold against the greenback. However, the price actions were completely opposite from the positions as euro, pound and yen gained.

USDINR

Technical Observations:

USDINR near month futures completed more than 61.8% retracement from 75.49 to 72.61. It has trend line resistance around 75.

The pair has formed Doji candlestick pattern on monthly chart indicating indecisiveness among traders.

Momentum oscillator, Relative Strength Index of 14 days period trading above 50 and direction is slightly upward suggesting positivity.

ADX line heading southward indicating weaker trend.

The level above 75.10 makes the way for 75.50 and 75.70 while on downside breaking below 74.35 it will drift towards 73.50 level.

Monthly Range : 75.70 to 73.50

EURINR

Technical Observations:

EURINR near month futures took support at 61.8% of prior upswing but yet to form higher low for trend reversal.

The pair has formed Bullish engulfing pattern on weekly chart.

The pair is having resistance around 88.90 and crossing of the level will mean near term reversal in trend.

Momentum oscillator, Relative Strength Index of 14 days heading north with price and volume support suggesting strength in EURINR.

Short term trader can see long opportunities above 88.90 and could see level of 89.90 while the said view get negated if it breaks the level of 87.70.

Monthly Range : 89.90 to 87.40

GBPINR

Technical Observations:

GBPINR near month futures given strongest monthly close indicating continuation of bullish momentum.

The pair formed bullish candle without lower shadow indicating bulls are in command.

The short term moving averages are placed above medium term moving averages indicating up trend.

Momentum Oscillators and Indicators on daily and weekly charts are sailing north suggesting bullish momentum with trend.

We expect GBPINR can head toward 105 once the level of 104.30 crosses while breaking below 103 will negate the bullish view.

Monthly Range : 102 to 106

JPYINR

Technical Observations:

JPYINR futures formed weekly inside bar indicating consolidation after gains.

The pair has formed lower low in the week gone but took the support of rising trend line (as displayed in side chart).

The pair is trading above the short term moving averages.

Momentum oscillators and indicators on daily and weekly charts placed well above breakeven line indicating continuation of upward momentum.

Near term bias for JPYINR August futures remain bullish with higher side 68.60 to 69 can be seen and breaking of 67.35 will be considered as trend reversal

Monthly Range : 67 to 69

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