USDINR Turns Red As Oil Prices and Inflation Data Favour the Rupee

Summary:
• USDINR declined in Monday's intraday session as India's inflation continued to rise and China's economic data weakened oil's demand side.

USDINR declined marginally on Monday, going down by 0.03 percent and trading at 83.51 in the intraday session as Indian markets remained closed for the Bakri Id holiday. The rupee has been strengthened by the rise in the Indian wholesale inflation announced on Friday.

According to the Indian Ministry of Commerce and Industry, India’s Wholesale Price Index (WPI) rose to 2.61 percent in May from 1.26 percent in April. Furthermore, the figure exceeded the forecast rate of 2.5 percent, and will likely be reflected in consumer prices in June. The WPI reading has risen for the last three consecutive months, beating the forecast estimate each time. That solidifies the current belief that the Reserve Bank of India (RBI) will hold the current 6.5 percent interest rates to the end of the year.

Meanwhile, the US dollar is unlikely to make significant strides against the rupee in the absence of high-impact economic releases on Monday. That said, two FOMC members, Philadelphia’s Federal Reserve Bank President Patrick Harker and New York Fed President John Williams are scheduled to speak in the course of the day, and their speeches could give USDINR fresh impetus. Also, later in the day, traders could position themselves in favour of the US dollar ahead of Tuesday’s release of US industrial production figures for May.

The USDINR trading pair could also come under pressure from crude oil prices, which are likely to fall following China’s soft economic data released on Sunday. Industrial Production in the world’s second-largest economy declined to 5.7 percent from 6.7 percent in May, which could affect oil’s demand. However, that could be good news for India’ the world’s third-largest imported of crude oil, and could also provide fuel for the rupee against the dollar.

Technical analysis

The momentum on USDINR is neutral to bearish-leaning. The pivot mark is likely to be at 83.51, and the downside is likely to prevail if resistance persists at that mark. That could see the first support established at 83.48, and an extension of control by the sellers at that point will break the support and potentially send the pair lower to test 83.47. Alternatively, a move above 83.53 will signal control by the buyers. The upside movement could meet the next resistance at 83.65, and a break above that mark will invalidate the downward narrative. In addition, it could result in a stronger upside momentum to push the pair to test 83.54.