Dollar/Rupee on the verge of decisive break

The dollar/rupee is on the edge of a decisive break.

Dollar/Rupee had a positive trade last week. Pair posted more than 0.60% gain, the biggest weekly gain in eight weeks. Strength from the greenback and dovish expectations for the Reserve Bank of India supported recent gains. A negative trend in domestic equities also weighed on the sentiment.

The dollar remained stable against a basket of currencies and gained 0.36% as data showed inflation slowed slightly more than expected last month. On the potential for U.S. monetary policy, though, it offered traders little clarity.

However, International crude oil prices continued to plunge which restricted the loss. Brent crude futures, the global oil benchmark, declined 1.77% to $70.03 per barrel. Posted fourth consecutive weekly fall.

The Indian rupee ended at 82.210 paise lower against the US dollar. The dollar index ‘inched higher’ towards a five-week high and settled at 102.7050, with a weekly gain of 1.40%. Highest gains expected after 20 February 2023.

Furthermore, on the domestic economic front, retail inflation eased to an 18-month low of 4.7% in April from 5.66% in the preceding month. It has been sliding toward the Reserve Bank of India’s target 4% rate, suggesting the central bank may continue to hold policy rates at current levels for longer.

Meanwhile, the Index of Industrial Production (IIP) marked a five-month low output which inched up 1.1% in March from a year earlier, strengthening the case for a shift in focus to shoring up economic growth as price pressures ease.

Now, the focus will shift to India WPI Inflation which will be released on Monday. The data could bring clutter for the pair. WPI inflation is expected to contract by 0.20% from 1.34%.

On the global front, some speeches from the central bank of the U.S., Europe and the U.K. will hold volatility next week.

Technical Outlook

Since 16 March 2023, the USDINR pair has been trading in a downward consolidation zone. It retreated from the high of 82.86 and found support at 81.50.

On Friday, the pair gained by 0.17% and settled at 82.2100 levels. On a weekly basis, it gained 0.62%, which was the biggest weekly gain in eight weeks.

A long-term consolidation is giving the shape of a descending Triangle pattern on the daily chart. It aims to indicate that a big move is waiting in the near future.

However, the chart is not yet completed, and the pair would need either its strong resistance or, a breakdown of crucial support in order to give confirmation.

On the upside, decisive resistance is seen at 82.50. A break above it will open the door for 82.90-83.35.  Alternatively, failure of the break will create a probability for retreat cement towards 82.00-81.70 again.

Furthermore, the Rate decision by the U.S. jitters amid uncertainty about the global economic situation and is expected to hold volatility in Dollar/ Rupee also.