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Rupee could open higher on weaker greenback - HDFC Securities

* Indian rupee expected to open slightly higher following overnight weakness in dollar index after US inflation data. Asian stocks look set for modest gains after U.S. shares and Treasuries rose on signs of moderating inflation that reduced concerns about an imminent paring back of Federal Reserve stimulus

* Asian high-yield currencies can benefit from sleepy markets as traders have little to distract them until the Jackson Hole symposium in two weeks. The U.S. inflation report came and went without much drama, leaving the traders who haven’t already gone on vacation looking for a carry trade to pass the time. That will open the door for Rupee to have a period of modest strength given they have a yield cushion that is relatively generous.

* On Wednesday, spot USDINR closed with a paise gain to 74.44. The pair moved no where since last couple of days and facing resistance at 74.50 amid risk-on sentiments and strong fund inflows. Technically, it has resistance at 74.65 and support at 74.20.

* Indian bonds are marginally lower as traders await 250b rupees ($3.4b) of bond purchases by the RBI on Thursday under its debt purchase plan and inflation data. The 10-year yields rose 1bp to 6.24%; 5-year yields also 1bp higher at 5.75%. Economists expect India July CPI to ease to 5.72% y/y versus 6.26% in the previous month.

* The dollar index extended losses in Asian trading as 10-year Treasury yields slid after a solid auction. Prices paid by U.S. consumers climbed at a slower pace in July but remained elevated. The inflation trajectory has implications for the Fed’s likely timeline for tapering bond purchases and President Joe Biden’s push for unified Democrat support for another $3.5 trillion in social spending. Some lawmakers fear more outlays could push up the cost of living.

USDINR

Technical Observations:

* USDINR August futures closed at 50 days simple moving average and formed another Doji candlestick pattern suggesting indecisiveness among traders.

* The pair has resistance to 20 days simple moving average at 74.65.

* Momentum oscillator, relative strength index of 14 days period still placed below 50 suggesting weaker momentum.

* MACD has given positive cross over but stayed below zero line, while histogram stayed below zero line indicating weaker trend.

* The pair has unfilled gap support in the area of 74.10 to 74.20.

* USDINR August futures expected to trade with negative bias with downside support at 74.25 and resistance at 74.65.

USDINR August Daily Chart

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