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Rupee heads for third weekly gain  - HDFC Securities

Indian rupee expected to start right following strong inflows and continuation of risk-on sentiments. The forward markets indicate spot USDINR could open slightly lower from previous close. Rupee heads for third weekly gains amid huge foreign fund inflows and steady dollar index. On Thursday, spot USDINR ended with loss of 15 paise to 74.47 amid surge in domestic equities along with weaker dollar index.

Technically, spot USDINR is having support at 74.20 and resistance at 74.96, recent high. Asian stocks look set for a cautious start after U.S. shares edged up and Treasuries climbed as traders digested mixed economic data and the latest spate of earnings. U.S. initial claims for state unemployment benefits increased 51K to a seasonally-adjusted 419K for the week ended July 17, the highest since mid-May.

The S&P 500’s biggest three-day advance since April took the gauge closer to a new peak. Gold went nowhere one again to finish at $1,807 an ounce, WTI crude approached $72 a barrel to continue its strong rebound. US Dollar Index picks up bids to 92.84 amid early today. The buck keeps the previous day’s bounce off a convergence of 100-SMA and a one-month-old support line. The weakness in Euro after ECB meeting supported the dollar index along with short covering.

Interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively, by the European Central Bank. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon.

European Central Bank President Christine Lagarde says risks to economic outlook broadly balanced and economic activity is expected to return to pre-crisis level in 1Q. The dovish comments from the banks dragged Euro against major trading currencies. A chunky $95 billion weekly increase in Reserve Bank Credit pushed the quantity of interest-bearing assets on the Fed balance sheet to a new fresh high of $8.174 trillion.

Technical Observations:

* USDINR July futures closed below 21 DEMA but formed hanging man candlestick pattern considered as reversal pattern, the confirmation of the same will come below 74.35.

* The pair is having gap support at 74.20.

* Momentum oscillators and indicators on daily and hourly chart turned weak indicating near term weakness.

* Looking at the overall chart patterns, USDINR July futures expected to trade left with downside support at 74.20 and resistance at 74.66.

USDINR July Daily Chart

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