In the early European session on Thursday, the Indian Rupee (INR) is slipping further. It remains in a vulnerable position close to a record low, despite the efforts of the Reserve Bank of India (RBI) to stabilize it.
A confluence of factors is weighing on the INR. There’s a notable demand for the US Dollar (USD), and concerns regarding India’s economic growth have intensified. The release of disappointing economic data, such as the HSBC India Services PMI which came in at 58.4 in November, lower than the market consensus of 59.5 and also below the October figure of 59.2, has added to the downward pressure. Moreover, significant outflows from Indian portfolios, which have been witnessed in the wake of Donald Trump’s strong showing in the US Presidential elections, are also contributing to the selling pressure on the local currency.
However, there is a silver lining for the INR as lower crude oil prices could potentially limit its losses. Given that India is the world’s third-largest oil consumer, reduced oil costs can provide some relief. Investors are now closely watching for the release of the US weekly Initial Jobless Claims and Goods Trade Balance reports later on Thursday. Additionally, the focus will shift to the RBI interest rate decision and the crucial Nonfarm Payrolls (NFP) data that is due on Friday.
The INR’s Weakening Trend and Market Context
The US service sector also experienced a more pronounced slowdown in November. The Institute for Supply Management (ISM) reported that it dropped to 52.1 from 56.0 in October. Meanwhile, the US S&P Global Composite PMI declined to 54.9 in November compared to previous readings and expectations. The Services PMI also fell to 56.1 in November from 57.0, below the consensus.
Fed Chair Jerome Powell stated on Wednesday that the US economy is in a remarkably good state. This has led Fed officials to consider being more cautious about further reducing interest rates. Unemployment remains low, and the Fed has made progress on inflation, according to Powell. The Fed’s Beige Book survey also showed a slight increase in US economic activity in November after a period of little change, with businesses growing more optimistic about demand prospects.
For the USD/INR currency pair, an upward trend is currently in place. It is maintaining its uptrend on the daily timeframe and is trading above the key 100-day Exponential Moving Average (EMA). Nevertheless, there are signs that suggest a possible shift in the trend. While the pair is making higher highs, the 14-day Relative Strength Index (RSI) is registering lower highs, indicating a bearish divergence. This implies that the current upward momentum may be waning and that the direction could reverse in the near future.
Looking at the resistance and support levels, the first significant resistance level to keep an eye on is close to the all-time high of 84.77. If bullish candlesticks continue to form and the pair extends its gains, it could potentially reach the 85.00 psychological mark and then progress towards 85.50. On the downside, if selling pressure persists and the price drops below the resistance-turned-support at 84.60, it could expose the low of November 25, which is at 84.22. The 100-day EMA at 84.02 is seen as a potential support level that could come into play.
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