Rupee in opposite traction with USD
While USD Index (DXY) fell from 100 to 95.00, Rupee lost from 62.00-62.15 to 64.20-64.35 (62.07 to 64.28). MARKET PULSE lifted the USD/INR base from lower to higher end of strategic support set at 61.65-62.15, seen good to trigger value adjustment to 64.35-64.85 before consolidation at 63.35-63.85. It was bang on! It was precise in EUR/INR as well, the fall from 71.00-71.25 held at set end of reversal zone at 65.50-65.75 before building steam to take out 71.00-71.25 for extended rally into 73.00-73.25. In the meanwhile, EUR/USD broke out of 1.0450/1.05-1.10/1.1050 into 1.1100/1.1150-1.1.1450/1.1500 thanks to possible delay in FED shift into rate hike cycle, expectation deferred from September to December 2015.
Period of consolidation ahead of downside risks on Rupee
USD/INR near term trading range is already shifted up from 61.50-63.00 to 63.00-64.50 in consolidation mode. At this stage, it is not clear whether the next round of adjustment will be for revert back to 61.50-63.00 or step up to 64.50-66.00. The bias is clearly in favour of upward shift with major cues in favour of the US dollar. DXY is seen to form base at 91.50-92.50 (EUR/USD resistance at 1.1550-1.1650) for revert back to 95-100 (EUR/USD into 1.0650-1.1150); pipeline 50 bps rate cut from RBI against 50 bps rate hike from FED (ahead of possible shift of operating policy from Repo-MSF to Reverse Repo - Repo corridor) and resultant squeeze in India-US 10Y yield spread below 5.50-5.60% - these two factors are major short term risks on Rupee, when FII appetite stay low. When most cues are turning against Rupee, it is prudent to stay risk-off on short term USD liabilities, risk-on on short term USD assets and risk-neutral on long term USD assets and liabilities. Having already covered end May'15 exports at 64.35-64.50 (at spot above 64.20) and end June imports at 64.05-64.20 (at spot 63.50-63.60), now shift focus to 12M USD/INR play at 67.75/68.00-68.75/69.00 (spot not beyond 63.00/63.35-64.65/65.00 covering ease in 12M premium from 7.15 to 6.65% post 50 bps rate cut). For now, let us set USD/INR spot focus at 63.35/63.50-63.85/64.00, overshoot not beyond 63.20-64.20; recent low of 64.28 expected to stay safe till August policy review.
Post the sharp recovery in EUR/INR from 65.50-65.75 through 71.00-71.25 to 73.00-73.25, it is consolidation phase at 71.75/72.00-73.00/73.25. The near term breakout bias is not clear, and if any will be shallow not beyond 25-50 paisa. It is safe to trade end to end with appetite to add on breakout with stop at 71.25 or 73.75.
Moses Harding
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