​​USD/INR weakens ahead of US Services PMI data

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• Indian Rupee edges higher amid the decline in oil prices, US Treasury bond yields.
• The Reserve Bank of India (RBI) is likely to maintain an interest rate pause at 6.50% at its December meeting.
• Market players await the US Services PMI data, due later on Tuesday.

Indian Rupee (INR) trades stronger on Tuesday on the decline in oil prices and lower US Treasury bond yields. Prime Minister Narendra Modi’s Bharatiya Janata Party won the elections in three of the five Indian states that had recently gone to the polls. That being said, the election results will likely be positive for equities inflows, alleviating some pressure on INR devaluation in the near term.

The Reserve Bank of India (RBI) is expected to announce a continuation of its pause on the interest rate at 6.50% and maintain a hawkish stance on Friday. Analysts predict a fifth consecutive pause by the Monetary Policy Committee (MPC) due to concerns about potential food price shocks affecting inflation expectations.

Ahead of the RBI interest rate decision, investors will keep an eye on the US ISM Services PMI, due later on Tuesday. The figure is expected to rise from 51.8 to 52.0.

Daily Digest Market Movers: Indian Rupee gains momentum amid multiple headwinds

• S&P Global India Services Purchasing Managers’ Index dropped to 56.9 in November from 58.4 in October, below market expectations of 58.0.
• RBI is likely to be selling the US dollar near the 83.38–83.39 Rupee levels, per Reuters.
• RBI Governor Shaktikanata Das said that headline inflation has moderated, and the Indian economy remains vulnerable to overlapping food price shocks coming from global factors and adverse weather events.
• India’s second-quarter Gross Domestic Product grew 7.6%, marking her the world’s fastest-growing major economy, driven by manufacturing and the government’s spending.
• US Factory Orders fell 3.6% MoM in October from the previous reading of 2.3%.
• US ISM Manufacturing PMI remained unchanged at 46.7 in November, weaker than expected.
• According to the CME FedWatch Tool, Fed futures are pricing in a 60% odds of a rate cut at the Fed’s March meeting, up from 21% over a week ago.

Technical Analysis: Indian Rupee’s positive outlook remains unchanged

Indian Rupee drifts higher on the day. The USD/INR pair has traded within a familiar trading band of 82.80–83.40 since September. From the technical perspective, the bullish tone of USD/INR will prevail as long as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This upward momentum is supported by the 14-day Relative Strength Index (RSI) that bounced off the 50.0 midline, indicating the further upside looks favorable.

A decisive break above the upper boundary of the trading range of 83.40 will pave the way to the year-to-date (YTD) high of 83.47, en route to a psychological round figure of 84.00. On the flip side, the critical support level is seen at the 83.00 psychological mark. Further south, the next contention to watch is the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by a low of August 11 at 82.60.