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Volatile Week Ahead of Rate Decisions from The Fed, BOE, BOJ -  HDFC Securities

Indian rupee registered second weekly gains after volatile trading throughout the week. In a holiday truncated week, three out of four sessions rupee gained following dollar inflows and strong Asian currencies. Friday’s economic data were quite disappointing for economy as retail inflation spiked up while industrial activities degrow, dimmed the chances of a rate-cut by the central bank when it reviews policy next month. Consumer price inflation hit 5.03% last month from January’s 4.06% while Industrial output contracted by 1.6% year-on-year in January versus upward revised growth of 1.6% (from 1%) in December.

Spot USDINR ended the week with loss of 24 paise or 0.33% to 72.79. The bias remains bearish following strong inflows from multiple IPOs. The pair is having support at 72.60 followed by 72.30 while continue to resist around 72.98, the 50 Days simple moving avera

India’s forex reserves declined by $4.255 billion to $580.299 billion in the week ended March 5, according to RBI data.

Dollar index were on back foot after two weekly gains as risk appetite pull global equities higher on Biden governments signed $1.9 trillion fiscal stimulus. While bond yields continued upward trend with another sharp selloff in rates on Friday left the 10- and 30-year Treasury yields at 1.63% and 2.38%, respectively, with each logging their highest close since the early stages of 2020.

CFTC: In FX, the paring of euro longs continued, with specs selling 24k. They also sold 13k yen, 2.2k sterling and 4.3k CAD. There was a bit of buying of CHF and AUD, but in aggregate the dollar short fell by more than $4 billion.

FOMC Balance sheet: US Federal Reserve Bank Credit rose $24 billion from a week ago, pushing interest-bearing assets at the Fed to a fresh high-water mark of $7.53 trillion, three-month annualized growth rate rose to 19.8% from 18.6% last week.

This week will be volatile week for forex market as worlds three major central bank’s (Fed, BoE and BoJ) will make monetary policy decision when bond yields are heading higher.

Technical Observations:

USDINR

USDINR March futures getting support around 72.80, the gap of February 26

The falls has been supported by volume as it has been remained above 20 days average volume level.

Momentum oscillator, stochastics given negative cross over and turning down indicating weakness in the pair. MACD also given negative cross over and placed at zero line indicating weaker trend with slower momentum.

Momentum indicator, ADX line has been weakening with negative cross over of +DI and –DI.

We remain bearish in USDINR March futures and expect 72.60 followed by 72.30 while level above 73.55 will negate the view.

USDINR March Daily Chart

EURINR

EURINR March Futures broken the 200 days simple moving average and confirmed the lower top lower bottom formation on daily chart.

The volume remains below average in last few days

The pair has next crucial support at 85.55, low of September month on continues chart.

Momentum oscillator, stochastic and MACD turned weak on daily and weekly chart while oversold on hourly chart suggesting short covering bounce before heading lower.

The above technical evidences suggesting bearishness for EURINR March futures and any sort of short covering bounce up to 88 be used for fresh short for target of 85.50.

GBPINR

GBPINR March futures closed at 21 days Exponential moving average. Medium term trend for the pair remains up following higher top higher bottom formation. It has rising trend line and 50 DSMA support at 100.64.

Momentum oscillator, stochastic and RSI exited from overbought zone heading towards south suggesting weakness in momentum.

MACD has given negative cross over to MACD Average and heading towards zero line suggesting weakness in the trend.

We remain neutral and wait for GBPINR March futures to break the level of 100.64 to confirm the trend reversal. In near term, the pair has resistance at 102.65.

JPYINR

JPYINR March futures closed below 100 weeks simple moving average and heading towards 200 weeks moving average, 64.41.

The pair has rising trend line support at 68.80, adjoining low of 61.53 and 63.90.

Momentum oscillator stochastic entered in oversold zone and MACD line placed below zero line with negative cross over suggesting downward momentum trend.

ADX line started strengthening with –DI placed above +DI suggesting downtrend trend.

Looking at the above technical evidences, we recommend short sell in JPYINR March futures below 68.50 for Target of 64.40 keeping short loss at 69.

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