Indian Rupee catches up with fundamentals as intervention-driven gains fade

FUNDAMENTAL OVERVIEW USD:The US dollar spiked to the upside on Friday after the strong US NFP reportbut the gains didn’t last as most of the NFP-driven moves got faded thereafter. This happened because the market focus was not on the NFP report, but on the CPI. The market pays attention to the data that the central bank is focused on, and the Federal Reserve is currently focused on inflation. In fact, just a day before the NFP report, Fed’s Waller mentioned that he would support keeping interest rates unchanged at the upcoming FOMC meeting, but a hot CPI would make him consider a rate hike. That’s why traders are focused on the CPI report on Friday. Unless, we get some surprising breakthrough in US-Iran relations, the price action will likely remain mostly rangebound or a bit positive for the greenback as traders at some point might start hedging into the CPI release. A soft or in-line CPI will likely weaken the dollar as Fed’s Waller mentioned that he won’t consider a rate hike unless we get a hot CPI. Conversely, an upside surprise in core monthly inflation data will likely trigger another rally on a hawkish repricing. INR:On the INR side, the currency has been completely detached from reality in the past week, as it rallied despite another increase in oil prices and a relatively stable US dollar. This might have been the result of a series of RBI’s interventions, as we saw three strong spikes without any positive catalyst for the rupee. This week, those rupee gains are being faded as intervention-driven moves rarely last without a change in fundamentals. Oil prices have been rising steadily, and we have the US CPI risk on the horizon. Both are negative drivers for the rupee. In the short-term, the INR will continue to be driven by oil prices and the hawkish/dovish repricing in Fed interest rate expectations. Therefore, the pair might keep trading in the wide range for longer until the US and Iran find an agreement and the Strait of Hormuz is reopened. In the big picture, the Indian Rupee remains on a bearish structural trend against the US dollar, so dip-buyers will continue to look for opportunities around strong major technical levels to keep pushing the USD/INR pair into new highs.  USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can see that USDINRerased most of the RBI intervention driven moves and it’s now approaching the major downward trendline. We can expect the sellers to lean on the trendline with a defined risk above it to position for a drop into the 94.00 handle. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 96.10 resistance next.USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we have an upward trendline now defining the bullish momentum. If we get a pullback into it, we can expect the buyers to lean on the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 94.00 handle.USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, we have another minor upward trendline defining the bullish momentum on this timeframe. The buyers will likely continue to lean on the trendline with a defined risk below it to keep pushing into new highs, while the sellers will look for a break to extend the drop into the 4-hour trendline. UPCOMING CATALYSTSTomorrow, we get the US PPI report and the US Jobless Claims figures. On Friday, we conclude the week with the US CPI report. US-Iran developments will also be key for the Indian Rupee as it continues to be driven mainly by oil prices. This article was written by Giuseppe Dellamotta at investinglive.com.