• The Indian rupee loses ground in the first European session on Thursday.
• Strengthening dollar and higher bond yields could limit the rise in INR.
• The US Federal Reserve’s interest rate decision will take center stage on Thursday.

Indian rupee (INR) loses momentum on Thursday. A demonstration in US dollar (USD) and higher bond yields after Donald Trump’s victory in the US presidential election support the pair. Market participants expect the INR to trade range-bound on Thursday as the Reserve Bank of India (RBI) is expected to intervene in the market by selling dollars to prevent excess volatility.

Meanwhile, persistent foreign fund outflows amid bond and currency volatility could put some selling pressure on the INR in the near term. Investors will keep a close eye on the US. Federal Reserve (Fed) meeting on Thursday, which is expected to reduce interest rates by 25 basis points (bp). Additionally, weekly US Initial Jobless Claims will be released.

Daily Digest Market Drivers: Indian Rupee Falls, All Eyes on Federal Reserve Meeting

• “The rupee was trading in a narrow range for the last two years and was also a bit overvalued. But now, since the dollar index is rising and other Asian currencies are depreciating, there will be an impact on the rupee as well,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.
• The HSBC India services PMI rose to 58.5 in October from 57.7 in September, beating a flash estimate of 58.3.
• “During October, the Indian services sector saw strong expansions in output and consumer demand, as well as job creation,” said Pranjul Bhandari, HSBC’s chief India economist.
• A narrow majority of economists in a Reuters poll expected the RBI to cut rates by 25 basis points to 6.25% in December.
• Financial markets are now pricing in a nearly 98% chance of a quarter-point taper and about a 70% chance of a similarly sized move in December, according to CME’s FedWatch tool. However, traders have begun to reduce bets on the number of rate cuts planned for next year.

Technical Analysis: USD/INR constructive outlook remains unchanged, focus on overbought RSI

The Indian rupee recovers that day. Technically, the positive view on the USD/INR pair prevails as the pair remains above the key 100-day EMA on the daily time frame. However, the 14-day Relative Strength Index (RSI) is trading above the midline near 73.45, indicating the overbought condition of the RSI. This suggests that further consolidation cannot be ruled out before positioning for near-term USD/INR appreciation.

The crucial resistance level for USD/INR emerges near the upper boundary of the uptrend channel at 84.30. The additional bullish filter to watch is 84.50, followed by the psychological level of 85.00.

On the other hand, the lower boundary of the trend channel and the October 11 high in the 84.05-84.10 zone act as initial support level for the pair. A break of this level could pave the way towards 83.80, the 100-day EMA. Prolonged losses could lead to a drop to 83.46, the September 24 low.