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USD/INR: Consolidation Might Come to an Abrupt Conclusion

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

USD/INR: Consolidation Might Come to an Abrupt Conclusion

The USD/INR is trading near the 81.9750 ratio as of this writing and its price action since the 13th of July has produced a tight price range. On the 12th of July the USD/INR was trading around the 82.3000 region, this after being able to incrementally decline when a high of nearly 82.7900 was reached on the 6th of July.

Prior to the apex value of July, the USD/INR had traded in a rather consolidated mode from the middle of June until the first few days of July, essentially within a price realm the currency pair now lingers. Speculators must constantly fight the slightest of reversals if they are using too much leverage, but the USD/INR over the mid-term has produced interesting behavioral sentiment and this can be seen on technical charts.

While day traders may believe the current price ratios will hold and the potential interest rate hike from the U.S Federal Reserve has been digested into the USD/INR for this coming Wednesday, they might want to reconsider their thinking. No, the world is not coming to an end, Forex has dealt with U.S central bank decisions before and experienced traders understand the sudden potential of the USD/INR changing direction. The rather tight price range of the USD/INR could vanish in the coming days if the Federal Reserve begins to change their tone within the FOMC Statements.

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USD/INR One Month Chart as of 24th July 2023

U.S Federal Reserve is Likely to Raise the Federal Funds Rate but Perhaps Shouldn’t

The USD/INR may not get hit too hard when the U.S Federal Reserve delivers the anticipated 0.25% addition to the Federal Funds Rate. However, the FOMC Statement which talks about the Fed’s outlook might cause a change to what have been calm seas recently in the USD/INR. Recent U.S economic data has been rather troubling, but inflation does actually seem to be creeping lower. The Fed has been pretty adamant in their recent ‘whispering’ about raising interest rates in July, and the potential of raising again later this year.

Time for the U.S Federal Reserve to Start Sounding Dovish

Yet, recent data suggests the Fed should likely not even raise rates on the 26th of July and continue its pause. But having expressed plenty of verbiage on the subject, the Fed may not want to surprise financial institutions and may have to raise, even if they do not really have to this week. And here is where it gets interesting – the FOMC Statement may have to express this notion of becoming more dovish. Think of this potential hike to the Federal Funds Rate this week as the last dose of medicine for a patient who already feels better, the doctor (the Fed) is insisting that to make sure the ‘sick’ is cured another teaspoon consisting of an interest rate hike is necessary.

If the FOMC Statement sounds more dovish than expected the USD/INR might start to see selling ignite and a downturn generate. There are no guarantees and certainly the Fed’s actions this coming Wednesday are not known. Yet, if the Fed hints that it will not raise interest rates over the mid-term and wants to see if inflation continues to lower that it may consider the potential of no more hikes, the USD will start to get weaker across the board. In other words, this last dose of medicine from the Fed may give them the feeling to tell the patient (U.S economy) that they no longer need to visit the doctor’s office for a while.

Other central banks are watching too. Inflation in Europe and elsewhere remains high. The complications of weaker domestic currencies against the USD have hit many economies including India where inflation has been rather strong. If the Fed can now start to become less aggressive, the effect will be quick and start helping the USD/INR trade lower if healthy economic mechanics allow this to happen.

Support levels for the USD/INR near 81.8000 to 81.7500 should be watched, if these levels begin to see challenges and sustained prices remain nearby, the USD/INR may be signaling that another downturn is about to happen. If the U.S Fed delivers a cautious, but more optimistic FOMC Statement this coming Wednesday, the USD/INR may deliver a new cycle of selling.

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USD/INR: Bounce Higher Ignites a Return to High Water Values

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

USD/INR: Bounce Higher Ignites a Return to High Water Values

The USD/INR is trading near 82.4350 as of this writing, which is a value the currency pair has not touched since the second week of June. While some analysts may say the move to higher ground yesterday and early this morning is based on the U.S FOMC Meeting Minutes, Wednesday’s report from the Federal Reserve likely only reinforced the bullish momentum which started earlier this week. The world of Forex can feel fickle, particularly when so many of the internal dynamics are hidden from a large segment of people who are trying to speculate on the results.

If the mechanics of the move higher which started on Monday are examined a couple of points should be considered closely, the low of the USD/INR was around 81.7300 on the 3rd of July. This low took place as most U.S financial institutions were on holiday in preparation for Tuesday’s 4th of July celebrations.

Fears of U.S Economic Prospects: Behavioral Sentiment and Stagflation Potential

The reversal higher since the 3rd of July has been pronounced, but before going into last weekend the USD/INR was largely trading within a consolidated manner near the 82.0000 level with a test of this mark having been displayed forcefully since the middle of June. A range of nearly 81.8500 to about 82.1500 largely has played out the past three weeks of Forex trading.

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USD/INR One Month Chart as of 6th July 2023

Monday’s dip in value to lows around 81.7300 took place when there was very little volume in the USD/INR market. The depths challenged marks not seen since the first week of May.

The reversal higher the past few days is certainly part of more transactional volume starting to be pumped into the USD/INR as U.S financial institutions have returned, but they are also likely being caused by an underlying nervousness within the Forex markets which may be factoring in the notion the U.S Federal Reserve seems to be on a path which will increase the Federal Funds Rate on the 26th of July.

The behavioral sentiment being generated regarding a Federal Reserve which stays in an aggressive stance started before yesterday’s release of the FOMC Meeting Minutes. Nervous conditions have been on the surface of the broad markets because U.S inflation remains rather resilient – but also importantly because last week’s Gross Domestic Product numbers published on the 29th of June, came in stronger than anticipated. From a troubling perspective some analysts could point to the moderately improved growth and combination of stubborn inflation as a sign stagflation is starting to shadow the U.S, which would certainly be a troubling predicament.

USD/INR Move to New Highs this Morning could Ignite more Nervous Reactions

USD/INR speculators may believe the move higher in the currency pair is overdone and that values need to be lower. However, the current price of the USD/INR is one that has been experienced quite a bit since October of 2022. A look at a one year chart shows the USD/INR has returned to higher ratios of its price range which it has experienced since breaking upwards in the middle of September 2022. And to make things more interesting for technical traders, the USD/INR has actually produced a rather stable range between 81.6000 and 82.9000 since February of this year.

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USD/INR One Year Chart as of 6th July 2023

While traders are certainly trying to anticipate what will happen next in the USD/INR to gain an advantage, they should remember the currency markets are almost impossible to time on a daily basis, but a look at mid-term prices does offer plenty of insights. If the USD/INR climbs too high, perhaps to the 82.5000 level the Reserve Bank of India could get a bit nervous and consider some type of intervention which it supposedly has done a few times over the past handful of months – but perhaps at higher price ratios.

USD/INR Mid-Term Considerations and the Current Price Range

However it is more cost efficient and reputably less damaging for central banks to not intervene if they do not have to, and simply let market dynamics effectively create a price for the USD/INR based on supply and demand. Meaning the current prices of the USD/INR look to be rather high, but taking into consideration the range of the Forex pair the past five months the values are not new. The prices in fact have been rather established, meaning the USD/INR may trade slightly higher, but then a lower wave of downward momentum could be anticipated.

Day traders who are gamblers may be tempted to sell the USD/INR if the currency pair finds more upwards mobility in the near-term. Trading volumes should be back to normal now that U.S financial institutions have returned from their holidays, and traders should be ready for the potential of fast price velocity developing. Risk management on wagers regarding the USD/INR are essential as always.