USD/INR sees more upside as US Dollar gains on US-EU trade agreement

• The Indian Rupee falls back against the US Dollar as US President Trump confirms a US-EU trade deal.
• Investors expect the Fed to leave interest rates steady on Wednesday.
• Indian Rupee weakens as FIIs continue to dump Indian equities.

The Indian Rupee (INR) resums its downside journey against the US Dollar (USD) on Monday after a positive opening. The USD/INR pair reclaims monthly high near 86.80 as the US Dollar gains after the United States (US) and the European Union (EU) announced that they have reached a trade framework ahead of the August 1 tariff deadline over the weekend to avert a damaging trade war.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 98.10.

According to the US-EU trade pact, Washington will receive 15% tariffs on all imports from Brussels, a number is lower than 30% that was threatened by President Donald Trump in the mid of this month. Still, the duty rate is higher than the zero-for-zero tariff proposed earlier by EU officials. Trade terms between the two are majorly similar to what Washington agreed with Japan last week.

The confirmation of the US-EU trade pact has undermined the uncertainty surrounding the August 1 tariff deadline as Washington has closed deals with its key trading partners, except its North American peers. The US Dollar faced a sharp selling pressure in past few months after US President Trump announced reciprocal tariffs on so-called "Liberation Day" on April 2.

Daily digest market movers: Indian Rupee weakens against US Dollar

• The upside move in the USD/INR pair is also driven by weakness in the Indian Rupee. The Indian currency continues to face selling pressures as Foreign Institutional Investors (FIIs) continue to pare stakes in Indian equities.
• On Friday, FIIs sold Rs. 1,979.96 crores worth of shares in the Indian equity market. So far, FIIs have pared stakes in Indian markets worth Rs. 30,508.66 crores.
• A significant outflow of foreign funds by institutional investors has weighed heavily on Indian indices. So far, Nifty50 is down over 3.5% in July. During the last hour of trading, the 50-stocks basket trades 0.6% below 24,700.
• Meanwhile, investors await the Industrial and Manufacturing Output data for June, which will be published at 10:30 GMT. The Industrial Output is estimated to have grown at a faster pace of 2.4%, compared to the prior reading of 1.2%.
• Going forward, the major trigger for the USD/INR pair will be the Fed’s monetary policy meeting, which is scheduled for Wednesday. According to the CME FedWatch tool, the Fed is certain to leave interest rates in the current range of 4.25%-4.50%. The commentary from Fed’s Powell will provide more color about his meeting with President Trump.
• This week, investors will also focus on an array of US economic data, including Personal Consumption Expenditure Price Index (PCE) and JOLTS Job Openings data for June, flash Q2 Gross Domestic Product (GDP), and the ISM Manufacturing PMI data for July.
• Meanwhile, investors also await high-stakes trade talks between the US and China in Stockholm, which will start from Monday.
• According to the South China Morning Post (SCMP), Washington and Beijing are expected to extend their tariff truce for 90 days, which will expire on August 12.

Technical Analysis: USD/INR stays above 20-day EMA

USD/INR demonstrates strength near a fresh monthly high near 86.80 at the start of the week. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.25.

The 14-day Relative Strength Index (RSI) broke above 60.00. A fresh bullish momentum would emerge if the RSI holds above that level.

Looking down, the 20-day EMA near 86.40 will act as key support for the major. On the upside, the June 23 high near 87.00 will be a critical hurdle for the pair.