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Risk Assets have a Rough Session ahead of FOMC Decision

• Risk assets are having a rough session in Asia amid the dollar’sstrength before the pivotal FOMC session later tonight. The weak Asian currencies and forward markets indicate USDINR could open 10 -12 paise higher opening at domestic bourses.

• On Tuesday, USDINR fluctuated in a narrow range with low volume as mood remains cautious ahead of the important event of the FOMC rate decision. The pair closed at 79.76 with losses of 2 paise. The bias remains bullish as long as the pair trades above 79.40 while crossing 79.90 will open for a new high.

• Market participants expecting a 75bps hike by Federal Reserve later tonight. Investors will be focused on the central bank’s dot plot for signs of how high rates will go and for how long.

• Market expectations for the Fed funds rate at end of this year have jumped from 3.74% at the end of August to 4.22%, spurred by stronger-than-expected US core inflation. Investors predict the rate peaking at 4.50% by the March meeting, with a rate cut being priced in by the end of 2023.

• Implied volatility across stocks, bonds and currencies has climbed since midAugust and jumped after Fed Chair Jerome Powell’sstern words atJackson Hole.

• US Treasury 10-year yields rose 7.3bps to 3.56%; while the 5s30s curve flattened 0.8bps to -17.8bps. The yield rise comes after a report that US home construction picked up unexpectedly in August, though building permits dropped.

• The Bank of Japan announced an unscheduled bond-purchase operation as it seeksto cap upward pressure on yields before a policy decision later this week.

Technical Observations:

• USDINR September futures consolidated in the range of 79.95 to 79.60 in the past three days. It has been wobbling at 21 days exponential moving average.

• The pair is having strong support at 79.45, the 55 days exponential moving average.

• Momentum oscillator, Relative Strength Index (RSI) has been placed slightly above 50 indicating positive momentum.

• MACD has been placed above the zero line suggesting a positive trend.

• DMI is indicating sideways to bearish trend as –DI placed above +DI and ADX line is placed below 25.

• The pair is having descending trend line resistance at 79.95.

• We believe USDINR could head north in today’s trade and may surplus the trendline resistance.

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