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Rupee expected to carry Monday’s gain following risk on sentiments  -  HDFC Securities

Indian rupee started the week on positive note after risk on sentiments back as the virus cases started declining and economic activities rebounded. Local units expected to trade with positive bias following strong foreign fund inflows by multiple IPOs and FDI route.

This month alone there could be around $1.5 billion inflows. On Monday, spot USDINR opened with loss of more than 10 paise but ended the day with loss of 7 paise to 74.57 after domestic equities gave away some of its intraday gains following global cues.

Technically, the pair has been in consolidation zone with in the range of 74 to 74.80 and expected to trade in tight range. India’s retail inflation, measured by the Consumer Price Index (CPI), eased marginally to 6.26% in the month of June slightly below previous month’s 6.30% and above the expectations of 6.36%. Separately, India’s factory output, measured in terms of the Index of Industrial Production (IIP), witnessed a year-on-year growth of 29.3% in May.

The downside for EM currencies could accelerate if U.S. CPI data later in the day triggers a broad dollar rally. The dollar rose after two days of losses on Monday, however last it has been trading slightly lower from overnight close. Asian stocks looked set to open firmer after their U.S. counterparts notched yet more all-time highs as investors awaited second-quarter earnings season. Treasury yields were steady as the U.S. sold debt.

The U.S. central bank’s purchases of Treasury and mortgage-backed securities are both contributing to lower housing costs, Federal Reserve Bank of New York President John Williams said, alluding to an ongoing debate among policy makers over whether or not to scale back MBS buying faster than Treasuries when the time comes to taper. Elsewhere, Oil dipped for the first time in three days.

USDINR

Technical Observations:

USDINR July futures formed bullish lollipop candlestick indicating bullishness.

The pair has been sustaining above 55 days exponential moving average. It has been consolidating in the range of 74.20 to 75 since Mid June.

Momentum oscillator, stochastic turned weak on daily chart indicating further consolidation.

USDINR July futures expected to consolidate in the range of 74.20 to 75 before heading higher. We remain neutral and expect pair to continue trading in range.

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