Despite a weakening US Dollar (USD), the Indian Rupee (INR) pared its gains on Monday, closing slightly lower after reaching a two-month high of 83.10 on Friday. This surge marked the INR’s most significant weekly gain in over five months, driven by robust inflows into Indian equities. The ongoing influx of USD into domestic equities may continue to bolster the INR in the short term. However, escalating crude oil prices and safe-haven flows amidst rising geopolitical tensions in the Middle East could potentially strengthen the Greenback, providing support for the USD/INR pair.
Investor attention remains focused on key economic indicators, with the first reading of US Gross Domestic Product (GDP) for Q1 2024 scheduled for Thursday, followed by the final reading of the Personal Consumption Expenditures Price Index (PCE) for April on Friday. In India, the GDP growth data for Q4 2023 is set to be released on Friday. Any signs of weaker-than-expected growth in the Indian economy could exert downward pressure on the INR and limit downside risks for the pair.
Market Developments
Indian Rupee Strength: The INR recorded its most significant strengthening in five months as India’s benchmark equity indices, BSE Sensex and Nifty 50, achieved record highs on Friday.
Economic Growth Moderation: After three consecutive quarters of impressive growth rates exceeding 8%, India’s economic growth is anticipated to ease to a four-quarter low of 6.7% in Q4 2023.
Geopolitical Unrest: Tragic events unfolded in Gaza, with at least 35 casualties reported following an Israeli airstrike on tents housing displaced people. This occurred in the wake of Hamas launching rockets at Tel Aviv for the first time in months, intensifying tensions in the region.
US Economic Indicators: Durable Goods Orders in April climbed by 0.7% MoM, following a revised 0.8% advance in March. Meanwhile, the University of Michigan Consumer Sentiment Index for May declined to 69.1 from 67.4 in April.
USD/INR Resumes Bearish Momentum
Breakout Confirmation: The USD/INR pair confirms a breakout of the neckline of the Head and Shoulders pattern formed since March 21, signaling a resumption of bearish sentiment.
Bearish Outlook: The pair maintains a bearish stance as it remains below the key 100-day Exponential Moving Average (EMA) on the daily chart, with the 14-day Relative Strength Index (RSI) indicating bearish momentum.
Potential Resistance and Support Levels: The 83.20 level, serving as both support-turned-resistance and the 100-day EMA, poses a potential barrier for USD/INR. Further upward movement could encounter resistance at 83.54 and 83.72. Conversely, breaches of the psychological support at 83.00 may lead to downside targets at 82.78 and 82.65.
As market dynamics continue to evolve, traders will monitor these technical levels and fundamental factors to gauge the trajectory of the USD/INR pair.
