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- July 13, 2023
Place- New Delhi, India
Recently, the US Dollar Index broke its 5-month stability, spurred by a weak inflation report in June. The slump in inflation didn’t sway the expected 25-bps rate hike this month, but it has led traders to foresee the cessation of rate hikes post-July. Projections for 2024 suggest an aggressive 150-200 bps rate cut, a prediction vastly different from the Federal Reserve’s dot plot.
Should the US Dollar Index continue to decrease, it would likely affect USDINR. While the central bank may hinder a fall below 81.60, excessive pressure could compel the RBI to retreat and let the Rupee appreciate and defend at lower thresholds. Interestingly, the Indian Rupee has devalued against many G-7 currencies, which allows appreciation without substantial impact on the REER or NEER.
We maintain a bearish perspective on USDINR. Traders can reflect this sentiment via futures or options. Critical resistance levels on the spot are 82.30 and 82.40. Traders may contemplate shorting USDINR futures or procuring out-of-the-money put options, using suitable stop losses. The strategy of option scalping or jobbing, which involves minimal price differences in buying and selling (sometimes as low as one tick or 0.0025), is gaining traction. Without any intra-day brokerage costs, even a one-tick profit can prove profitable, especially when executed multiple times daily with orders exceeding 100 contracts. However, stringent discipline and correct stop-loss strategies are crucial for these trades.
GBPINR keeps climbing, driven by lower-than-expected US inflation that has pushed GBPUSD to its peak since April 2022. GBPINR is currently trading at a level unseen since 2013, edging closer to an unprecedented high above 108.00. The Bank of England (BOE) projects a 125-150 bps rate hike, whereas the Federal Reserve (Fed) expects to hold after this month’s hike. This divergence in monetary policy predictions will likely favor GBP and preserve yield differentials. As a result, GBPINR may continue its upward trend in the short term, potentially testing the 107.00/107.20 levels.
GBPINR has support near the 106.40 and 106.00 levels, marking crucial points to observe. It’s vital to continuously monitor and set stop losses while trading unpredictable currencies like GBPINR. Traders without a clear trading plan often find themselves dealing with substantial positions, leading to distress. Taking such risks is strongly discouraged, as the market can lead to severe financial consequences when trades are not strategically planned. Implementing a robust stop loss is critical to effectively manage risk and safeguard your investment.
Currently, EURINR is trading at its peak since August 2013, inching closer to all-time highs on the spot at around 92.34 levels. The European Central Bank (ECB) is expected to boost rates by another 50 bps and then maintain the status quo, leading to a marginal deviation in monetary policy between the Federal Reserve and the ECB. However, traders are shifting their focus more toward the Fed’s expected halt and potential rate reductions in 2024 rather than the ECB’s pause. The ongoing weaker USD trend is pushing EURUSD higher, which in turn is elevating EURINR. The short-term bias remains on the upswing, with support near 91.20 and 90.85 levels, and resistance around 91.65 and 92.00 levels for July futures.
Trading without deploying a stop loss is undoubtedly a road to financial disaster. Despite the volatility inherent in currencies like EURINR, strict compliance with risk management strategies is essential. We frequently field distress calls from traders who neglect the importance of stop losses during significant trends. We strongly encourage all traders to plan their trades carefully as negligence can lead to severe repercussions. Implementation of a stop loss is vital to secure your financial health and evade the dangers of impulsive and unprotected trading.
With USDJPY falling more sharply than USDINR, JPYINR has witnessed a substantial rise. USDJPY can test 137.25/30 levels, and if USDINR manages to remain above 81.80 on the spot, it could propel JPYINR towards 59.60/65 levels on July futures. The support lies close to 59.15 and 58.90, while resistance is around 59.55 and 59.65 levels.
Key Points to Consider Today
U.S. stocks experienced an upswing on Wednesday, with both the S&P 500 and the Nasdaq Composite closing at their highest points in 15 months. This surge followed the June inflation data revealing a slowing rate, the lowest since early 2021, prompting speculation that the Federal Reserve may soon cease its interest-rate hikes. In addition, the Fed’s Beige Book indicated a slight increase in U.S. economic activity since the end of May.
Following the consumer price index data released on Wednesday, Treasury yields and the U.S. dollar saw a drop, as U.S. inflation fell to its slowest rate in over two years. This tame inflation data, coupled with recession concerns, has made the dollar less appealing to investors, causing the dollar index to drop 1.2% in afternoon trading, potentially marking its lowest closing since April 2022.
In June, U.S. consumer prices experienced a modest increase of 0.2%, slightly below the 0.3% increase forecast by economists polled by the Wall Street Journal. The annual inflation rate slowed down to 3% from the previous month’s 4%, reaching its lowest since March 2021. According to the latest Beige Book report released by the central bank on Wednesday, U.S. economic activity experienced a slight uptick in late May and June.
Fed-fund futures traders anticipate a 92.4% chance that the Fed will increase its benchmark interest rate by 25 basis points in its forthcoming meeting this month, based on data from CME Fed Watch. The likelihood of another interest rate hike by the U.S. central bank in September has been predicted to be 12.9%, down from 22.3% a day earlier.
Contrary to the U.S. trend, India’s headline retail inflation rate reversed its four-month decline and rose to 4.81% in June, up from 4.31% in May. This increase, higher than the expected 4.6%, is attributed to rising vegetable prices and the diminishing effect of a favorable base.
India’s industrial output witnessed a growth of 5.2% in May, surpassing the consensus estimate of 5%. This marked a three-month high, with the industrial growth rate for April being revised from 4.2% to 4.5%, compared to 19.7% in May 2022.
In the IT sector, TCS posted resilient Q1 earnings, slightly outdoing estimates with a robust order book, while HCL Tech underperformed, indicating challenges in the IT sector due to reduced client spending.
Asian stocks echoed the gains made in U.S. equities after the American inflation rate hit a two-year low, relieving global markets from the pressures of rising interest rates in the world’s largest economy.
Nifty ended its two-day winning streak on July 12, closing the day 55 points or 0.28% lower at 19384. The range of 19300-19523 will be crucial to monitor in the upcoming days. An upward move past 19523 could trigger an uptrend, while a downward slide below 19300 could lead to a market correction.
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