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Rupee could see pullback after gaining for four session in row - HDFC Securities

Indian rupee expected to start slightly lower following overnight rebound in dollar index after weaker than expected US economic data. Rupee treaded higher to wrap up August with a 1.9% gain, marking the best month in last three. Local unit becomes the best performing currency among Asian currency baskets in August following rebound in economic activities, strong foreign fund inflows and central bank's absence also supporting sentiment. In August, Foreign institutions were bought worth $627 million equities and $1.62 billion debt. Rupee closed at 73.01 per dollar, its highest since June 11, compared to its close of 73.26 on Monday. It has gained 1.7% after rising in each of the last four trading sessions. It rose in six out of the last seven sessions. Technically, spot USDINR is having support at 72.70 while resistance at 73.65, the 200 days simple moving average.

The benchmark 10-year bond yield closed down 1bp at 6.23%; 5-year yield steady to 5.65%. India released its Q1FY22 GDP data which was broadly in line with market expectations. 20.1% YoY growth is one of the highest compared to other major economies, it is on the base of sharper decline of 24.4% in Q1FY21.

However, , on a sequential (quarter-on-quarter) basis the domestic economy contracted by 16.9% during the quarter following three quarters of positive growth. Asian stocks look set to dip as traders evaluate economic risks from the delta virus strain and the prospect of a reduction in pandemic-era central bank stimulus support. U.S. stocks edged back from all-time highs amid some mixed data, including a drop in consumer confidence to a six-month low and a record jump in home prices. Treasury yields climbed following losses in European sovereign bonds.

USDINR

Technical Observations:

USDINR September futures placed below lower band of Bollinger band which indicates we could see some short covering bounce before heading lower. The pair has been trading with lower top lower bottom and well below short and medium term moving averages.

Momentum oscillator, fast stochastic placed at 1.4 , which is highly oversold suggesting some consolidation. ADX line is also heading higher with –DI placed above +DI suggesting bearish trend. USDINR September futures expected to show some short covering bounce before heading towards 72.80 and lower while on higher side 73.70 will act as resistance. Short term trend for the pair remains bearish until it breaks the level of 74.50

USDINR September Daily Chart

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