USD/INR Recoils As DXY Index Shows Weakness

Summary:
• USD/INR chart shows that the Indian rupee has been gaining strength in terms of US dollar for the past two days.

USD/INR exchange rate is having a pullback after a 1.4% price increase this week. On Friday, Indian Rupee gained strength for the second consecutive day as the dollar showed signs of weakness. Til press time, USDINR was trading at 82.53 after showing minor losses during the London session.

The dollar strength index is currently 1.6%, down from its monthly highs. The increasing global banking concerns are adversely affecting the DXY index, which shows the dollar’s strength relative to other major currencies. On Friday, DXY Index dropped by 0.19 as Gold and Silver prices both increased by around 1%.

Bank Term Funding Program (BTFP) Might Send Dollar Tumbling

Since the failure of the Silicon Valley Bank, US government has stepped in to protect the depositors. The Biden administration has come up with a Bank Term Funding Program (BTFP) to make additional funding available. While the effort will give the depositors the much-needed protection, it can also damage the quantitative tightening efforts of the Fed. This will also affect the USDINR exchange rate.

According to the strategists at JP Morgan, the backstop program can potentially result in a $2 trillion liquidity addition to the banking system. Since the smaller banks are more prone to failure, most of this money will go to regional banks. Another estimate put the total figure at $460 after considering the uninsured deposits at the six U.S banks. This will further weaken the dollar and the USD/INR.

USD/INR Froms Ascending Triangle Pattern

The US Dollar to Indian Rupee chart has formed 2 textbook patterns that can have different outcomes. The first pattern is the ascending triangle/wedge pattern. This is a bullish pattern that often results in an upwards breakout. The breakout target of this pattern is around the 86.4 level, which will be a 4.7% price increase from the current level.

The second pattern, which is a bearish reversal pattern, is the formation of the triple top on the daily chart. This is a very bearish pattern which acts as a major reversal signal on the chart. In case of a downward breakdown from the triangle, the first major target will be the 78.4 level.