USDINR- Fundamental, technical set-up remains bullish on higher top higher bottom formation; support at 81

USDINR: Fundamental, technical set-up remains bullish on higher top higher bottom formation; support at 81.95

By Dilip Parmar

The week gone by was full of drama in the financial markets. A shock US inflation print sent stocks and bonds tumbling and then turning positive on Thursday only to have them jerk back in one of the most extreme days of trading since the Fed intervention of March 2020. The rebound was all the more surprising as it came out of the blue and seems to have been triggered by positioning rather than fundamentals. The Japanese currency tested its weakest level since the Asian crisis after the inflation data, only to rebound. While there were fireworks in the Japanese currency market, UK Prime Minister Liz Truss may have been disappointed with sterling’s reaction to her dismissal of Kwasi Kwarteng, a close friend and ally.

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USDINR Outlook

Fundamental and technical set-up remains bullish for USDINR amid higher top higher bottom formation. The pair is having near-term resistance at 82.90 and support at 81.95. The dollar index is likely to keep rallying until the current slowdown in the global economy is over, inflation peaks out and growth starts to accelerate again. Till that happens, the dollar will be the safest place.

Asian currencies are likely to be a tad weaker in near term as China’s party congress gives little in the way to economic policy changes. Chinese President Xi Jinping signaled no change in direction for two main risk factors dragging down China’s economy, providing little lift to a worsening growth outlook.

The dollar’s overall strength against major currencies will be sustained until real US yields start to fall and inflation peaks. The dollar is the most preferred currency by the traders so far this year and expected to remain for the rest of the year. Dollar Index, a basket of six currencies, has near term resistance at 115 and 121 while on the lower side 109.90 will act as support. 

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CFTC Positioning

The flow was mixed as the aggregate dollar position was largely unchanged from the prior week. Specs were buyers of yen (4.2k), sterling (10.4k), CHF (1k), and MXN (3.7k) while selling euros (6.2k), CAD (4.3k), AUD (3.5), and NZD (5.1k).

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)