Market Overview:
The Indian Rupee (INR) showed signs of recovery on Thursday, partially reclaiming lost ground amidst mixed Indian Purchasing Managers Index (PMI) reports. While the nation’s HSBC Manufacturing PMI dipped slightly to 58.4 in May from 58.5 in April, the Services PMI improved to 61.4 from the previous reading of 60.8. Additionally, potential foreign exchange intervention from the Reserve Bank of India (RBI) may limit the INR’s weakness in the near term.
Impact of External Factors:
However, the hawkish tone from the FOMC Minutes and Federal Reserve (Fed) policymakers could bolster the Greenback, potentially exerting pressure on the INR. Moreover, foreign outflows ahead of India’s upcoming election outcome may further weigh on the INR’s performance. Market participants are closely monitoring the preliminary US S&P Global PMI, with a stronger-than-expected reading possibly delaying the anticipated rate cut cycle and supporting the US Dollar (USD).
Key Market Insights:
Food prices remain elevated in India, according to the RBI’s latest ‘State of the Economy’ report, potentially contributing to sustained inflation levels.
Foreign investors exhibited significant selling activity in Indian equities in May, with outflows exceeding $3 billion, marking the largest monthly outflow since January 2023.
The FOMC’s release of minutes from the April 30 – May 1 policy meeting highlighted concerns about inflation, potentially impacting the timing of future rate adjustments.
Financial markets are adjusting their expectations for rate cuts, with the CME FedWatch tool indicating nearly a 60% chance of the first reduction occurring in September.
Technical Analysis: USD/INR Outlook:
On the technical front, the USD/INR pair has formed a Head and Shoulders pattern since March 21, indicating a potential reversal in trend. However, the bullish outlook appears fragile as the pair approaches the key 100-day Exponential Moving Average (EMA) and neckline on the daily chart. A breach below this level could signal a resumption of the downtrend, supported by the 14-day Relative Strength Index (RSI) holding below the 50-midline.
Critical Levels and Targets:
Support Levels: 83.20–83.25 (confluence of 100-day EMA and neckline), 83.00 (psychological level), 82.78 (January 15 low)
Resistance Levels: 83.54 (right shoulder of Head and Shoulders pattern), 83.72 (April 17 high), 84.00
Conclusion:
While the INR exhibits signs of recovery, external factors such as the Fed’s stance and domestic economic indicators continue to influence its trajectory. Market participants are advised to closely monitor critical support and resistance levels for potential trading opportunities in the USD/INR pair.
