Date: June 09, 2023
Place- New Delhi, India
On June 08, 2023, the Indian Rupee’s performance in the global currency markets captured significant attention. Traders and analysts closely monitored the currency’s movements as it navigated through a day of fluctuations and potential impact on the broader financial landscape.
The rupee’s performance on this particular day carried implications for various stakeholders, from exporters and importers to investors and policymakers, who eagerly awaited insights into the currency’s strength and competitiveness in the international market.
RBI Maintains Policy Rates and Lowers Inflation Forecast for FY24
The Reserve Bank of India (RBI) revealed its highly anticipated monetary policy, resulting in minimal turbulence within the USDINR market. In a move that aligned with expectations, the central bank decided to leave policy rates unchanged. However, there was a positive twist as the inflation forecast for FY24 was revised downward from 5.2% to 5.1%. Meanwhile, the RBI maintained its growth expectation for FY24 at a steady 6.5%.
USDINR Begins with a Downward Gap Amidst US Dollar Index Decline
Despite the steady monetary policy, USDINR started the day on a downward note due to an unexpected decline in the US Dollar Index. This decline was triggered by a sudden surge in US unemployment claims, which reached 18-month highs. Traders now find themselves eagerly awaiting the upcoming Federal Reserve meeting, where they anticipate no significant changes that could sway the USDINR market.
USDINR’s Erratic Behavior Presents Challenges for Traders
Navigating the USDINR market has proven to be a challenge lately, as the currency pair lacks a clear direction and occasionally exhibits erratic behavior. Opening with a deviation of 15/20 paise against the previous day’s trend, trading this pair requires careful consideration. Intra-day scalping remains the preferred option for traders, while short straddles and strangles continue to attract attention. However, it is advisable to maintain small position sizes due to the near-record low option premiums. Even a 20-paise gap can pose a significant risk to one’s position.
Support levels are observed around 82.40/45 and 82.20/25 on the spot market, providing potential footholds for traders. On the other hand, resistance levels are seen near 82.60/62 and 82.70/75, creating potential barriers for further USDINR appreciation. As traders brace themselves for potential market movements, the USDINR remains in a range-bound state, awaiting catalysts that could bring about a definitive trend.
Eurozone GDP Contracts, Challenging Recession Classification
The EURINR currency pair is currently experiencing a slight upward drift, with a trading range between 88.70 and 89.20. In the first quarter of this year, the Eurozone GDP contracted by 0.1%, following a similar contraction in the previous quarter. While two consecutive quarters of contraction typically indicate a recession, the strong labor market within the Eurozone makes it difficult to classify the current economic environment as recessionary. The impact on the EURUSD currency pair has been limited as traders anticipate a return to positive GDP growth starting from the second quarter onwards.
Resistance Faced by EURUSD on the Upside
Despite the expectations of positive GDP growth, EURUSD is facing resistance on the upside. This resistance can be attributed to the presence of speculative long positions, indicating that many traders have already taken bullish positions on the Euro. Additionally, there is an expectation that the European Central Bank (ECB) may be nearing its peak interest rates, which further dampens the bullish sentiment. These factors combine to create obstacles to EURUSD’s upward movement.
EURINR Trading Above Range, Potential for Further Upside
On the other hand, EURINR is currently trading above the upper end of its range, which spans between 88.10 and 88.75 in futures trading. This indicates a potential for further upward movement in the currency pair. With the current momentum, EURINR has the potential to move higher toward the level of 89.50/60. Traders should closely monitor this development and consider the potential opportunities for gains in the Euro against the Indian rupee.
JPYINR Influenced by USDINR and USDJPY
The JPYINR currency pair’s value is significantly influenced by the movements in both USDINR and USDJPY. Currently, JPYINR on the spot market has entered a range of 58.50 to 59.50. Traders and investors should closely monitor the developments in USDINR and USDJPY to gain insights into potential trends and opportunities in the JPYINR pair.
JPYINR and USDJPY in Rangebound Patterns
The JPYINR pair is experiencing a rangebound pattern as USDJPY remains confined within the range of 138.40 to 141.00. This indicates that there is limited volatility and a lack of clear direction in the exchange rate between the Japanese yen and the US dollar. Traders should be cautious when considering trading opportunities within this rangebound environment, as the currency pair awaits a breakout or significant catalyst to establish a sustained trend.
Lack of Clear Direction in USDINR Signals the Need for Monitoring
Simultaneously, the USDINR pair is struggling to exhibit strong momentum, further contributing to the overall lack of clear direction in the JPYINR currency pair. As the USDINR exchange rate remains uncertain, it becomes crucial for market participants to closely monitor the movements of USDINR, as well as the associated impact on JPYINR. This monitoring will provide valuable insights into potential breakout opportunities or the emergence of new trends.
GBPINR Reaches Highest Level Since May 11th
The GBPINR currency pair is currently experiencing a surge, trading at its highest level since May 11th. The exchange rate is hovering close to the highs reached on May 10th, which were around the 103.65 level. This upward movement indicates a potential strengthening of the British pound against the Indian rupee.
Lack of Follow-Through in GBPUSD and USDINR Raises Caution
Despite the positive performance of GBPINR, caution is advised due to the lack of follow-through observed in both the GBPUSD and USDINR currency pairs. These two major currency pairs have struggled to maintain any sustained trend over the past couple of months. Traders should be aware of this uncertain market behavior and remain cautious in their approach.
Bullish Bias in GBPINR Maintained Above 103.00 Level
However, traders may still maintain a bullish bias in GBPINR as long as it remains above the key support level of 103.00. This level acts as a critical threshold for the currency pair’s upward momentum. If GBPINR manages to stay above 103.00, it indicates a potential continuation of the current bullish trend. On the other hand, if the exchange rate breaks below 103.00, it will likely remain within its month-long trading range of 102.00 to 103.00, suggesting a period of consolidation. Above the 103.00 level, GBPINR has the potential to aim for the next target of 102.00, indicating further strength in the British pound against the Indian rupee.
After an extended period of uncertainty, US stocks surged higher on Thursday, propelling the S&P 500 index out of its prolonged bear market phase. Investors, particularly in technology companies with lofty valuations, made attempts to shake off concerns surrounding the future of interest rates ahead of the upcoming Federal Reserve policy meeting. This bullish momentum ended the S&P 500’s bear market streak, which had persisted for an impressive 248 trading days, marking the longest such market decline since May 15, 1948.
Volatility on Wall Street, as measured by the CBOE Volatility index, commonly known as the fear gauge, dropped to a fresh post-pandemic record low. However, data on US jobless claims painted a different picture, revealing a surge to a 21-month high of 261,000, indicating a significant increase of 28,000 from the previous week. Nevertheless, investors remain hopeful that the Federal Reserve will refrain from raising rates in the upcoming meeting.
An interesting development in the bond market is the prolonged period during which the yield on the 2-year Treasury note has exceeded that of the 10-year Treasury note. This phenomenon has persisted for over 230 trading sessions, the longest stretch since the early 1980s, according to FactSet data.
Market sentiment currently reflects a 68% likelihood of the US Fed maintaining interest rates within the range of 5% to 5.25% on June 14. However, the chances of a 25 basis point rate increase in July have risen to 53%, up from a mere 10% just a month ago, according to the CME’s FedWatch tool.
Shifting our focus to China, the consumer price index rose by 0.2% in May compared to the same period last year, surpassing April’s 0.1% increase and market expectations of 0.3%. On the other hand, China’s producer prices continued to deflate in May, with the producer price index dropping by 4.6% during the month. This decline, steeper than April’s -3.6%, represents the most substantial drop since June 2016. Economists surveyed by Reuters had anticipated a 4.3% decrease in producer prices.
In the Asia-Pacific region, equities experienced a notable upswing, reaching their highest level since mid-February on Friday. This surge was driven by the positive momentum of the overnight Wall Street rally and growing market expectations of the Federal Reserve avoiding a rate hike in the upcoming week.
In the Indian stock market, the Nifty faced a decline after a volatile session on June 8, influenced by weak global cues. By the closing bell, the Nifty was down by 0.49%, or 91.9 points, at 18,634.6. Technically, the Nifty formed a near Engulfing Bear pattern on the daily charts, suggesting potential resistance at 18,778, while 18,531 could serve as a support level. If the Nifty closes below this support on Friday, it could signal an Engulfing Bear pattern on the weekly charts, potentially amplifying the downtrend.
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