Welcome to our daily pre-market update, where we comprehensively analyze the Indian rupee’s performance in the currency markets. In this article, we will delve into the previous day’s trading session, examining the critical movements of the rupee against major currencies such as the US dollar (USD), British pound (GBP), Euro (EUR), and Japanese yen (JPY). Additionally, we will offer insights into what we can expect from the rupee in today’s trading session.
Date- Aug 01, 2023
Place- New Delhi, India
In financial news, the USDINR (U.S. Dollar to Indian Rupee) currency pair opened strong last Friday at around 82.20, but since then, has largely remained within a particular range over the subsequent two trading sessions. According to recent market trends, the US Dollar Index, which measures the value of the dollar against a basket of foreign currencies, has demonstrated some resilience. Simultaneously, the Chinese Yuan is showing signs of potential weakness, hinting that the Indian Rupee might face selling pressure against the US Dollar.
Traders who are considering their next move might find it beneficial to buy during low price points, or “dips.” In terms of risk management, they should set a stop-loss order slightly below the 82.18 level for August futures contracts to limit potential losses. If the USDINR spot price can sustain itself above last Friday’s peak of 82.34, this could trigger stop-loss buying, a strategy where traders buy back the assets they shorted to prevent further loss.
However, if the USDINR moves below the 82.18 level on a continued basis for August futures, traders should reconsider their optimistic outlook on the currency pair. If this happens, the focus will then shift towards seeking lower support levels in the vicinity of 82.00/82.03. In financial terms, a support level is a price level where the asset’s price tends to stop falling because of increased demand or buying interest.
The GBPUSD (British Pound to US Dollar) currency pair is currently trending downwards, while the USDINR (US Dollar to Indian Rupee) is on an upward trajectory. This dynamic creates a level of ambiguity in the direction of the GBPINR (British Pound to Indian Rupee) currency pair. The performance of GBPINR over the subsequent four trading days will be significantly influenced by upcoming economic events in both the US and the UK.
In terms of key data releases, tonight’s agenda includes the US ISM (Institute for Supply Management) survey and the JOLTS (Job Openings and Labor Turnover Survey) job opening report. If the collected data turns out to be strong, it could exert downward pressure on the GBP, making it less valuable. On the other hand, if the data is weaker than expected, it could positively impact the GBP’s value.
Currently, the GBPINR is trading within a relatively wide band between 104.75/104.80 and 106.50. Until there are further developments or decisive economic indicators, the market is likely to stay within this range, reflecting a state of equilibrium in market sentiment and trading activity.
In July, the eurozone observed a marginal decrease in inflation, moving from 5.5% in June to 5.3%, marking its lowest level since January 2022. Nevertheless, core inflation, which is a more precise measure of underlying inflationary pressures since it excludes volatile items like food and energy, held steady at 5.5% in comparison to June.
In terms of economic growth, the eurozone outperformed previous estimates in the second quarter of the year, with its economy expanding by 0.3% on a quarter-to-quarter basis. On an annual basis, the Gross Domestic Product (GDP) registered a growth of 0.6% for the same quarter.
Despite these generally positive economic indicators, the EURINR (Euro to Indian Rupee) in the spot market underwent a minor downward shift overnight. Therefore, we predict that the EURINR is likely to display a range-bound trading behavior during the course of the day, suggesting that the currency pair will likely hover within a specific price band rather than showing any significant directional movement.
Key Points to Consider Today
As July came to a close on Monday, U.S. stocks registered modest gains, marking the fifth consecutive monthly increase for the S&P 500 and Nasdaq Composite. This bullish sentiment was largely fueled by optimism surrounding strong corporate earnings and a robust U.S. economy. The S&P 500 ended July with a 3.1% gain, while the Nasdaq Composite rose 4.1%. Meanwhile, the Dow Jones Industrial Average rallied 3.4% in July, securing a second consecutive month of gains.
Year-to-date, the S&P 500 has surged 19.5%, largely due to indications of inflation cooling last week which have stoked optimism that the U.S. economy could avoid a significant downturn as the Federal Reserve’s monetary tightening phase winds down. The tech-heavy Nasdaq Composite’s gains were even more substantial, up by 4% in July, which pushed the index’s total returns for the year to an impressive 37.1%. This marked the Nasdaq’s best first seven months of a year since 1975 when it surged 39.1% over the same period, according to data from Dow Jones Market Data.
As per FactSet, more than half of the S&P 500 companies have reported earnings, with 80% beating earnings per share estimates, and 64% exceeding revenue expectations.
However, in international news, China’s Caixin manufacturing purchasing managers index showed a contraction in July, falling to 49.2 from 50.5 in June due to slower production and softer market demand.
In India, effective from August 1, the government has significantly increased the windfall tax on petroleum crude to Rs 4,250 per tonne from Rs 1,600, and introduced a tax of 1 rupee per litre on diesel. Additionally, the country’s eight core sectors recorded a five-month high growth of 8.2% in June, with May’s core sector growth revised up to 5.0% from 4.3%.
The Indian government’s fiscal deficit widened to Rs 4.51 lakh crore in the April-June quarter from Rs 2.10 lakh crore in the April-May period. At Rs 4.51 lakh crore, the fiscal deficit for the first quarter of the fiscal year 2023 accounts for 25.3% of the full-year target of Rs 17.87 lakh crore.
The Indian government also announced a price increase for domestic natural gas, raising it to $7.85 per million British thermal units in August from $7.48 per mBtu in July.
Asian shares opened stronger on Tuesday, mirroring the positive sentiment on Wall Street as investors continue to evaluate signs of a stable global economy.
After two days of decline, the Nifty resumed its upward trajectory on July 31, buoyed by positive global cues and buying momentum in IT and Metal stocks. The Nifty closed up 0.55% or 107.8 points at 19753.8 and appears set to move towards the 19826-19868 range. In case of a decline, the 19563 level could provide support. The broader market showed even better performance, with the Nifty gaining 2.94% in July, as the earnings season reaches its peak.
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