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 02, 2023
Place- New Delhi, India
The US dollar continues to exhibit strength as it retains its position as the world’s primary reserve currency. Its role as a safe-haven asset during times of global financial stress attracts investors and traders, who see it as a reliable store of value. This demand for the USD is bolstered by the stability and liquidity of the US financial markets, as well as the trust in the US economy and government. Despite potential credit rating downgrades due to negative developments within the US, the reserve currency status of the USD remains unchallenged, allowing it to benefit from safe-haven flows during periods of uncertainty. However, the long-term strength of the USD may face challenges as global economic dynamics evolve over time.
Recent Fitch ratings action indicates a prevailing negative risk sentiment in the market, expected to persist for today. As a consequence, the USDINR (US Dollar – Indian Rupee) exchange rate is likely to rise, creating selling pressure on equity markets. Traders are advised to adopt a strategy of buying on dips in USDINR, with a suggested stop loss (SL) set at or below 82.20 on spot levels to manage potential risks. Key resistance levels for USDINR are anticipated near 82.40, followed by 82.70/75 on spot levels, indicating an overall upward bias and further strength in the USDINR exchange rate in the near term.
The GBPINR exchange rate is trending lower, approaching 105.00 levels ahead of the Bank of England’s meeting. The price action indicates a downward trend with lower lows and lower highs. As long as prices remain below 106.00, there is a risk of further declines. The support zone is seen near 104.80/90 levels on August futures.
In July, the US manufacturing sector showed improvement but remained below 50, indicating contraction for the eighth consecutive month after a 30-month expansion. Simultaneously, US JOLTS Job Openings declined to 9.58 million in June, missing expectations of 9.62 million. While these data had limited impact on the US Dollar Index overnight, the news of a US ratings downgrade has influenced the markets today. As a result, EURINR is experiencing a higher opening due to the rise in USDINR, leading to an anticipated rangebound price action for EURINR today.
JPYINR, the Japanese yen against the Indian rupee, is currently displaying a downtrend in the currency markets. This downward movement is driven by two factors: first, an upward movement in USDJPY, which means the US dollar is strengthening against the Japanese yen. Second, there is a relatively slower pace of increase in USDINR, suggesting that the Indian rupee is not appreciating as rapidly against the US dollar.
Adding to the selling pressure on JPYINR is the Bank of Japan’s commitment to maintaining an easy money policy. When central banks pursue easy money policies, it generally leads to a weaker domestic currency. As a result, the Japanese yen weakens, putting further pressure on JPYINR.
Given the prevailing conditions, our outlook on the JPYINR pair remains bearish. Key support levels to watch out for are identified near 57.80 and 57.60. If the exchange rate reaches these levels, it might find some temporary support, potentially leading to a pause in the downtrend. On the other hand, resistance levels are observed near 58.00 and 58.20 on the August futures contract. These levels could act as barriers to any potential upward movement, capping the pair’s gains in the near term.
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