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Rupee Plunges To Record Low As Market Brace For Hawkish Fed -  HDFC Securities 

• The Indian rupee is expected to open 5 to 7 paise lower following an overnight gain in the greenback, as the US 10-year benchmark bond yield surges to 3.37%. The highest inflation in a generation, stoked by supply-chain and commoditymarket disruptions amid China’s Covid struggles and Russia’s war in Ukraine, is roiling the investment outlook.

• The risk-averse sentiments, foreign fund outflows and surging crude oil prices also weighed on the local unit which made a fresh all-time low of 78.28 a dollar on Monday. However, spot USDINR managed to closed at 78.04 on the back of the central bank’s intervention and profit booking from dollar buyers. The pair is expected to remain in demand with crossing 78.30 will open 78.70 while on the downside supportremains at 77.70.

• Volatility term structures in the major currencies are back in full inversion mode as realized volatility takes a turn north and central bank meetings tomorrow will come into focus.

• The yield on India’s 10-year bond has climbed more than 100 basis points this year. It rose eight points to 7.60% on Monday on an expectation of a higher interest rate going ahead. • India's headline retail inflation rate eased to 7.04% in May (vs 7.1% forecast) fromApril's near-eight-year high of 7.79% thanksto a favourablebase effect.

• The dollar hit its highest point in over two years Monday as Treasury yields skyrocketed and US stocks tumbled as the fallout from a hot inflation reading rattled global trading and worries that the Federal Reserve will plunge the US economy into a recession mount. The pound tumbled to a fresh year-to-date low while the yen snapped a six-day losing streak against the dollar following commentsfromthe Bank of Japan.

USDINR Technical Observations:

• USDINR June futures formed Gravestone Doji Candlestick pattern, considered to be a trend reversal pattern. The reversal of the same will confirm below78.10.

• On Monday, the pair retraced after touching an upward slopping trend line resistance, placed at 78.39.

• Derivative data indicating short covering with a rise in price and a fall in open interest.

• Relative Strength Index of 14 days oscillating around 68 indicating consolidation in an up trend.

• USDINR June futures has come out of the consolidation zone and given an upward breakout confirming further strength going ahead. The pair has resistance at 78.40 and 78.80 while support at 77.70.

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