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Traders to Weigh Trade Deficit and Geopolitics

• Indian rupee is expected to open slightly higher but with overnight gains in the dollar index, weak risk assets and record trade deficit number to weigh on the currency as the day progresses. We expect spot USDINR could see an upward movement towards 79 before going back to 78.50 as it has been highly oversold on short-term time frames. The pair is expected to trade in the range of 78.50 to 79 in the near term.

• Rupee appreciated for the fourth day in a trot following a gain in risk assets backed by institutional buyers. Better than expected manufacturing output, dollar inflows, stronger regional currencies and stable crude oil prices supported the local unit in the recent pullback from a record low of 80.06. On Tuesday, spot USDINR closed with a loss of 31 paise or 0.40% to 78.71 after touching a low of 78.495 intraday.

• India's merchandise trade deficit jumped to a new record high of $31.02 billion in July. The previous record high was set in June when the trade deficit was $26.18 billion. The number did not augur well for the size of the current account deficit in Q2 FY23.

• The Dollar Spot Index rose 0.75% on Tuesday to snap a four-day decline, its best day in a week since July 11 as Treasury yields surged after Federal Reserve officials indicated the central bank has ways to go in tightening monetary policy, quashing speculation it could cut rates assoon as next year.

• Four Fed district-bank presidents highlighted in remarks on Tuesday that there was no sign yet of inflation easing, pushing back against a narrative in financial markets over the past week that policymakers are envisioning a pivot away from tightening.

• Traders are also focused on a worsening rift between officials in Washington and Beijing as House Speaker Nancy Pelosi visits Taiwan that fueling a rush into havens.

USDINR

Technical Observations:

• USDINR August futures took support at ascending trendline adjoining swing low of 76.38, 76.93, it also coincides with the 50-day simple moving average.

• The short-term moving average breached the medium-term moving average indicating a short-term weak trend.

• Relative Strength Index of 14 days about to enter the oversold zone indicating continuation of downward momentum.

• MACD is placed slightly above the zero line but histogram bars are rising indicating a weak trend.

• USDINR August futures could show bargain buying towards 79.20 before heading towards 78.50 and 78.10.

USDINR August Futures Hourly Chart

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