The Indian Rupee bounced strongly from record lows on renewed hopes for US-Iran war end
The Indian Rupee (INR) has shown resilience against the US Dollar (USD), bouncing back from record lows amid improving sentiment regarding the US-Iran conflict. Per the full note from Giuseppe Dellamotta, the recent pause in US military operations has sparked optimism for a potential resolution, which has led to a weakening of the USD across the board. This shift is further supported by expectations of increased economic activity in the region, which could ultimately affect inflation and monetary policy in the US. As traders prepare for key data releases, including US Jobless Claims and the Non-Farm Payroll report, the INR's outlook remains cautiously optimistic, contingent on the geopolitical landscape and US economic indicators.
What the desk is arguing
The desk posits that the INR's recent bounce is a direct reaction to positive developments in the US-Iran negotiations, which have alleviated some geopolitical risks. Per the full note source, the USD has weakened as hopes for a ceasefire have emerged, with reports indicating that a deal could be finalized soon.
The technical analysis shows that USD/INR has dropped significantly from its all-time highs, suggesting a shift in market sentiment. The desk notes that the pair briefly fell below key resistance levels but managed to recover, indicating potential support for the INR as long as optimism persists.
Where it sits in our coverage
Our consensus target for USD/INR is 1.075, with a range of 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees a stronger INR in the near term, while bofa holds a more bearish outlook, suggesting divergence in expectations regarding the INR's trajectory.
How other firms see it
Firms such as jpmorgan and citi are aligned with the desk's bullish stance on the INR, citing improved risk sentiment and potential economic recovery. Conversely, bofa remains cautious, emphasizing the structural bearish trend of the INR against the USD.
Watch for the USD/JPY pair as it may reflect similar dynamics influenced by US monetary policy and geopolitical developments. Additionally, monitor the Federal Reserve's stance on interest rates, as it will play a crucial role in shaping the USD's strength against the INR.
What the calendar says
With US Jobless Claims and the Non-Farm Payroll report on the horizon, these data points will be critical in assessing the USD's trajectory and, by extension, the INR's performance. The market will be particularly attentive to any shifts in labor market indicators that could influence Federal Reserve policy.
Key takeaways
- 01The INR has bounced back from record lows due to improved sentiment on US-Iran negotiations.
- 02The USD weakened across the board, influenced by geopolitical developments and expectations of increased economic activity.
- 03Technical analysis suggests potential support for the INR as long as optimism remains intact.
- 04Key upcoming data releases will be pivotal in determining the USD's strength and the INR's outlook.
Market implications
Traders should watch the USD/INR level closely, particularly around the 92.60 mark, as it may indicate further bearish momentum if breached. The upcoming US Jobless Claims and Non-Farm Payroll reports will also be crucial in shaping market sentiment and positioning ahead of potential shifts in the Fed's monetary policy.
FUNDAMENTAL OVERVIEW USD: The US dollar weakened across the board again yesterday following several positive news on the US-Iran front. In fact, the bearish momentum got triggered by Trump pausing Project Freedom so that the US could work to finalise a deal with Iran. The pause was of course interpreted as another step towards a deal.
Later in the European session, we got an Axios report saying that US and Iran were getting close to a one-page memo to end the war and that US officials were expecting Iran's response to several key points in the next 48 hours. Tonight, we got reports that Iran was expected to deliver a response via Pakistani mediators today. Looking ahead, the Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices.
The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase. After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.
INR: On the INR side, the positive news on the US-Iran front offered some reprieve for the Indian Rupee as the risk sentiment improved on expectations that the war ends and the Strait of Hormuz gets finally reopened. In the short-term, the Rupee should remain supported as long as the optimism remains intact, but if things go south again, we can expect another selloff into new record lows. In the big picture, the Indian Rupee remains on a bearish structural trend against the US dollar, so the dip-buyers will likely look for opportunities around strong technical levels to keep pushing into new highs.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME On the daily chart, we can see that USDINR dropped significantly from the all-time highs following the positive US-Iran news. The price briefly fell below the upper bound of the channel today, but eventually bounced back above it. The sellers will want to see the price falling back below the upper bound to increase the bearish bets into the 92.60 level next.
The buyers, on the other hand, will likely continue to pile in around the upper bound to keep pushing into new record highs. USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME On the 4 hour chart, we can see that the sellers piled in on the break below the minor upward trendline to target a pullback into the upper bound of the channel with the positive US-Iran news eventually providing the boost. There’s not much else we can glean from this timeframe, so we need to zoom in to see some more details.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME On the 1 hour chart, we now have a minor downward trendline that could act as resistance. If we get a pullback, we can expect the sellers to lean on the trendline with a defined risk above it to position for a drop into the 92.60 level next. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new record highs.
UPCOMING CATALYSTS Today we get the latest US Jobless Claims figures and an Iran’s response to US’s war-ending proposal is expected to come via Pakistani mediators. Tomorrow, we conclude the week with the US NFP report and University of Michigan Consumer Sentiment survey. This article was written by Giuseppe Dellamotta at investinglive.com.
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