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 31, 2023
Place- New Delhi, India
USDINR
The USDINR (US Dollar to Indian Rupee) has demonstrated consistent behavior by maintaining a well-established trading range since October of the previous year. The trading range has been oscillating between a high of 83.00 and a gradually ascending lower cap that currently stands at 81.60. It’s been observed that even minor catalysts within this range can potentially trigger substantial movements of about 50-80 paise.
In the preceding week, the USDINR hit a pinnacle nearing 82.35. However, the expectation for the coming week is a downward trend. It’s noteworthy that there exists a price gap from last Friday’s opening price, which is situated between 81.94 and 82.21. It’s projected that this gap might witness a closure, either partial or complete. Thus, day traders are advised to keenly observe the support near 82.20. The possibility for rewarding long-side trading employing futures or options arises as long as the spot prices remain above the 82.20 threshold. Resistance levels that traders need to be aware of stand at around 82.35, followed by 82.50/55.
Alternatively, if the prices begin to slide beneath 82.20 on the spot and continue on a downward trend, there’s a potential risk of a decline toward the next substantial support zone at 82.00/02 levels on the spot.
The USDINR is likely to be influenced by the behavior of the US Dollar Index and the USDCNH. The US Dollar Index’s movement is impacted by several factors, including the Eurozone inflation rate, JOLTS job openings, ADP employment report, ISM surveys, BOE meetings, and the US jobs report. The USDCNH, on the other hand, is susceptible to the overall sentiment about China, which is currently negative due to the continual deterioration of economic data and unpredictability concerning major stimulus measures.
Taking all these factors into account, the upcoming week is predicted to experience higher volatility in USD INR compared to the previous week. This could potentially create favorable conditions for day traders participating in futures and options trading.
GBPINR
The Bank of England (BOE) is slated to announce its monetary policy on the upcoming Thursday, following analogous actions undertaken by the U.S. Federal Reserve and the European Central Bank in July. In those instances, both institutions increased rates by 25 basis points but hinted at an uncertain future concerning additional hikes, emphasizing that such decisions would be contingent on incoming economic data.
Considering the recently reported inflation data for June, which fell short of expectations, there is speculation that the BOE might be inclined towards adopting a cautious, data-driven approach towards future interest rate increases. Should the BOE decide to moderate its stance on prospective rate hikes, this could exert downward pressure on the GBP vis-a-vis the USD and INR.
Contrastingly, should the BOE defy market expectations by choosing a more assertive approach, such as implementing a 50-basis point increase or maintaining a strongly hawkish tone following a 25-basis point increase, it could trigger a substantial rally in the GBPINR exchange rate.
In terms of the forecasted trading range, GBPINR is anticipated to oscillate between a broad range of 104.80/105.00 and 106.50 on the spot market. If a breakout occurs from this range backed by significant trading volume, a directional move of about 1-1.50 rupees following the breakout could be expected. This situation is predicted to present numerous intra-day trading opportunities for market participants.
For traders contemplating carrying positions overnight or over several days, options might be a more desirable instrument compared to futures, given the potential for increased volatility and uncertainty associated with the BOE’s decision.
In summary, the monetary policy announcement by the BOE is poised to significantly impact the GBPINR exchange rate. Therefore, it’s essential for traders to closely monitor the central bank’s tone and decisions.
EURINR
The inflation data released from the Eurozone today is set to be a vital factor for EURINR traders. The outcome of this data will exert a significant influence on the EURINR’s movements. Additionally, this week will be dense with data from the US, encompassing regional Fed surveys, ISM indices, and three jobs reports, making it an intense data-centric period for those trading EURINR. The US jobs data, which has been a key determinant shaping the Federal Reserve’s hawkish stance, could consequently have a substantial impact on both EURINR and the US Dollar Index.
Taking into account the scheduled data releases and potential market catalysts, the EURINR is forecasted to oscillate within a wide range of 89.80 and 91.20 on the spot market in the immediate term.
JPYINR
On the previous Friday, the Bank of Japan (BOJ) cautiously moved toward policy normalization. Given the notable divergence in policy between the BOJ and other major central banks, along with a lack of urgency from Ueda to bridge this gap, the JPYINR (Japanese Yen to Indian Rupee) is projected to experience a downward trend. This scenario could become particularly volatile due to potential fluctuations in the USDJPY (US Dollar to Japanese Yen) and USDINR (US Dollar to Indian Rupee) exchange rates.
In the near term, support levels for the JPYINR are identified at 58.00 on the spot market, followed by 57.60, while resistance is expected around 58.85/90 levels on the spot. The current outlook for the JPYINR indicates a persistent downward bias.
Key Points to Consider Today
U.S. stocks concluded Friday on a high note, marking a third consecutive week of gains for the Dow Jones Industrial Average. This performance resulted from investors processing a variety of inputs including inflation data, consumer confidence reports, and strong corporate earnings that assisted markets in rebounding from Thursday’s afternoon slump. Specifically, the Dow saw a 0.7% increase for the week, while the S&P 500 and the tech-dominant Nasdaq escalated by 1% and 2% respectively.
Investors on Wall Street managed to set aside concerns surrounding the policy adjustment from the Bank of Japan. On Friday, Governor Kazuo Ueda announced the central bank’s decision to permit yields to rise beyond a benchmark, paving the path for potential future policy normalization. This shift could significantly impact various global assets and markets heavily dependent on Japanese capital. As a result, yields on 10-year Japanese government bonds surged to their highest since 2014.
Friday also saw U.S. stocks make strides as investors processed economic data suggesting a cooling off of inflationary pressures in recent months. This positive economic scenario, featuring moderated inflation and a resilient U.S. economy, was met with a favorable market response.
Further U.S. economic data disclosed a mild 0.2% rise in the cost of goods and services in June, indicating an easing of inflation. Core price pressures, excluding food and energy, also softened, as per the personal-consumption expenditures index. Furthermore, consumer sentiment, as per the University of Michigan, reached a 22-month peak of 71.6 in July, largely due to a robust labor market and diminished inflation.
Oil futures withdrew from three-month highs on Friday, though they still notched a fifth consecutive weekly gain. Major contributors to this trend included receding fears of a global economic slowdown and effective supply cuts by significant producers. West Texas Intermediate crude for September delivery increased by 49 cents, concluding at $80.58 a barrel on the New York Mercantile Exchange. This marked a 4.6% weekly increase for WTI.
In China, the official manufacturing purchasing managers’ index showed a slight improvement in July but remained in contraction for the fourth consecutive month, highlighting continued weakness in the world’s second-largest economy. Meanwhile, China’s non-manufacturing PMI fell to 51.5 in July from 53.2 in June, indicating the government’s plan to announce new measures to stimulate consumption in an attempt to revive the economy.
Asian equities started Monday on a positive note, following a rally on Wall Street as investors shrugged off concerns about the Bank of Japan’s policy change and focused on the latest US economic data.
On July 28, India’s Nifty ended lower for the second consecutive day, influenced by weak global signals and a sequence of subdued Q1 results. Nifty declined by 0.07% or 13.9 points, closing at 19646.1. Despite an initial fall, Nifty managed to recover some losses on July 28, forming a high wave doji pattern. Over the week, Nifty fell by 0.5% after four weeks of gains. Key support for the Nifty is pegged at 19562, below which a further 2% drop could occur, signifying a potential end to the 17-week rally from the low of 16828. The near-term resistance is likely to be around 19748.
Disclaimer
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