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
The rise in U.S. private payrolls propelled the US Dollar to the highest levels seen since July 7th. As a result, the USDINR currency pair neared the top of its 10.50 trading range, approaching 82.90/83.00 levels. Traders have taken profits from their long positions and are now looking at opportunities to short using options, setting a stop-loss at 83.05 if it reaches that on a closing basis. The tried-and-true strategy of purchasing near the lower range and selling near the higher range continues to be preferred.
Expectations are growing for increased short-selling by exporters and speculators in the market. Actions by the central bank, such as selling dollars, may also have an effect on market trends. Support levels for USDINR are found near 82.60 and 82.40, while resistance is seen around 82.90/83.00 levels.
The UK money market is currently torn between expectations of a 25-basis point (bps) and a 50-bps rate hike today. The recent downward trend in the GBPINR currency pair over the past few trading days suggests that currency traders are anticipating a 25-bps hike. If the rate hike turns out to be 25 bps instead of the expected 50 bps, further selling in GBPINR could occur. However, the determining factor influencing market sentiment will likely be the language employed by the Bank of England (BOE).
Should the BOE adopt a hawkish tone, it may result in a temporary retraction in GBPINR, possibly followed by an increase. On the other hand, if a dovish tone is taken, it could initiate a sell-off in GBPINR. Given these uncertainties, traders are strongly encouraged to utilize options rather than futures for carrying positions overnight, as a way to more effectively manage the potential risks involved.
Following the announcement of the US ADP job numbers, selling pressure has been exerted on both EURUSD and EURINR currency pairs, and it seems probable that EURINR could face additional selling. Meanwhile, the USDINR is confined to levels around 82.90/83.00, meaning that any further selling in EURINR will mainly hinge on how much the EURUSD drops.
For EURINR, support is anticipated near 90.00 on the August futures, with resistance likely around the 91.00 mark. Traders would be wise to keep a close eye on the fluctuations in EURUSD, as they will greatly influence the path of EURINR. A persistent decline in EURUSD could result in added downward pressure on EURINR.
JPYINR is presently experiencing a downtrend, fueled by a rise in USDJPY and a comparatively gradual uptick in USDINR. The Bank of Japan’s ongoing dedication to a relaxed monetary policy is adding to the selling pressure on JPYINR, and the outlook for this currency pair continues to be bearish. Key support levels for the pair have been pinpointed near 57.80 and 57.60, while resistance can be expected close to 58.20 and 58.40 on the August futures.
Key Points to Consider Today
U.S. stock indexes concluded the trading session sharply lower on Wednesday, with the S&P 500 registering its worst day since April. This significant downturn was triggered by a combination of factors:
- Credit Rating Reduction: The lowering of the U.S. government’s credit rating by Fitch Ratings contributed to the market’s anxiety.
- Bond Yields: Bond yields increased as the Treasury enlarged the size of its debt sales. The 30-year Treasury yield rose 6 basis points to 4.164% from 4.104% late Tuesday, while the 10-year Treasury yield advanced 2.9 basis points to 4.077% from 4.048% Tuesday afternoon.
- Labor Market Data: Despite the turmoil, data from ADP showed that the labor market remained robust in July, with private-sector employment increasing by 324,000. ADP revised June’s figures to 455,000 new jobs, down from the initially reported 497,000.
The CBOE VIX Index, a measure of anticipated S&P 500 volatility, surged 15.4% to 16.10, reaching its highest level since May 31 at 16.48 earlier in the session, according to FactSet data.
Asian Market Response
Asian markets mostly opened lower, reflecting heavy selling in U.S. stocks and long-dated Treasuries. Investors were assessing data that indicated a robust U.S. labor market, leading to expectations that the Federal Reserve might maintain the restrictive policy.
India’s Market Overview
In sympathy with other Asian markets, Nifty fell on August 2, following the downgrade of U.S. ratings. A 1.05% decline (207 points) was recorded at 19526.6. Notably, Nifty also closed below its 20-day exponential moving average (20DEMA), which had provided support during the recent upswing since March 31. As long as the down gap at 19705 is not filled, bullish action may be deferred. On downswings, the 19202-19303 band could offer support.
China’s Services Sector
A positive note came from China, where a private gauge of the nation’s services activity signaled continued recovery. The Caixin services purchasing managers index rose to 54.1 in July from June’s five-month low of 53.9.
To sum up, the events of the day reflect a complex interplay of financial and economic factors, with the downgrade of the U.S. credit rating, shifts in bond yields, and strong labor market data painting a multifaceted picture of current market conditions. Investors appear to be navigating a challenging landscape, balancing concerns about credit ratings and monetary policy with evidence of continued economic growth in both the U.S. and China.
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