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Rupee Outlook and Strategy

• The US dollar gained a bit to settle above the 102.30 mark on Tuesday ahead of BoJ’s monetary policy. The expectation of a bigger-sized rate hike from the US has vanished after last week’s softer inflation number, which has restricted the dollar from breaching 102.70 level. The major trend is weak as the probability of 25 bps hike in the next policy has remained above 94.0%

• Rupee future maturing on January 27 depreciated by 0.23% to settle at 81.83 on Tuesday amid higher crude oil prices and recovery in the dollar index

• The rupee is expected to appreciate amid softness in the dollar ahead of expectation of weaker retail sales numbers. Further, US PPI is expected to decline towards -0.1%. The softness in the US PPI would diminish the bets of aggressive rate hike by Fed. US$INR is likely to face key resistance of 50 day EMA at 82 and slide towards the initial supports at 81.40 and 81.20

Euro and Pound Outlook

• The Euro erased its gains as better-than-expected German economic sentiment data failed to provide any support to the pair. The positive reading since February 2022 has suggested an improvement in the economic situation. Meanwhile, expectation of a decline in inflation numbers in the region due to lower gas prices has diminished the bets for aggressive rate hike in the near term

• The Euro is expected to dip towards the next support level of 1.0730 as it breached the key level at 1.08. Further, the expectation of easing of euro zone CPI, which is likely to slide towards 9.2% for the first time in the last two months would force the ECB to change its hawkish stance. The Euro is expected to slip towards 1.0750-1.0730 as long as it remains below the 1.08 mark. EURINR (January) failed to break the 89 mark and witnessed a decline. It is expected to resume its weakness towards 87.80- 87.60 zone as long as it trades below 89.00

• The pound gained the most as a tight labour market and eye catching pay growth numbers supported a further rate hike by the BoE. The UK monthly unemployment rate remains steady at 3.7% whereas average earnings including bonus figure rose to 6.4% from the previous reading of 6.1%

• The pound is expected to trade with a positive bias as the combination of superheated inflation, rising wages, and a strong labour market may force the BoE towards hiking rates by more than expected at next month’s MPC meeting. Today’s CPI is expected to stay near the 10.5% mark. GBP is likely to rally towards 1.2365 as long as it holds above 1.2220. GBPINR (January) is likely to rise towards 100.50, followed by 101 as long as it holds above the key support of 99.60

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