inr-bank-notes - INR

The Indian Rupee on Wednesday closed higher at 71.4900 against the greenback as investors took as a positive sign the progress made in the US-China trade talks. Rupee kept strengthening through the London session and recovered some of the current week’s losses. The USD/INR exchange rate has reached a new intraday low at 71.074.

India’s economy is linked to China so strongly that any news coming out from the second-largest economy in the world can affect emerging market currencies like the Indian Rupee.

The trade tensions between the US and China are likely to carry on until an official deal is signed between the two largest economies in the world. The US president Donald Trump hinted that his administration won’t sign any trade deal with China until meeting the Chinese president Xi Jinping.

In the long-run, India has to face several headwinds that most likely will keep the Rupee under pressure. The slowdown in the Indian economy, which only posted 5.0% growth in Q2, missing the market consensus of 5.7% will put further pressure on the Indian Rupee. Inflation is also below the RBI 4% target at 3.18%. These macro factors will most likely force the Reserve Bank of India to cut again the benchmark rate for the six times since the beginning of the year.

To revive the Indian economy, the RBI is expected to cut the repo rate by another 25 basis points during the December Monetary Policy meeting. The benchmark interest rate is now at 5.15%.

In the short-term, the only notable risk event is the Initial Jobless Claims that will pop-up during the New York trading session. The consensus is for the US economy to add 215k new persons claiming unemployment benefits versus 210k previous reading.

The bigger macro forces that fuel the Rupee weakness will most likely be the main drivers of the USD/INR exchange rate.

USD/INR Technical Pattern

Despite the broad-based dollar weakness, the Indian Rupee couldn’t take advantage of it. While yesterday the GBP/INR exchange rate ended lower, we are still in the green zone since the beginning of the week. Actually, the Indian Rupee dropped to a 3-week low after it touched 71.560.

For the upcoming trading session, support level can be found 71.2278 while the key resistance level 71.7200 will test the bulls’ strength. A real shift in the trend direction can only happen if we manage to post a daily break and close below the 200-day MA. The 200-day moving average aligns perfectly with the big psychological number 70.000

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