USD/INR: Mildly positive near 71.00 with eyes on macros

• USD/INR awaits fresh clues to extend the recent recovery.
• Expectations of downbeat tax collection and strong oil prices weigh on the Indian rupee (INR).
• The absence of the US traders and major catalysts on the economic calendar will keep news headlines in the spotlight.

Despite pulling back from the intra-day high of 71.30, USD/INR stays positive while taking rounds to 71.07 during the pre-European session on Monday. The pair initially benefited from the optimism surrounding Asian economies, led by China, but fails to conquer the broad US dollar strength amid domestic challenges to India.

India’s former finance secretary Subhash Chandra Garg recently showed concerns while saying that the government's tax collection is likely to fall short of its estimate by Rs 2.5 lakh crore or 1.2% of GDP in 2019-20. Time to junk DDT (dividend distribution tax) and reform personal income tax.”

While the government’s efforts to open gates for the Foreign Portfolio Investors (FPI) have helped the Asian economy, investments in equity-oriented mutual fund schemes in 2019 saw a sharp drop of 41% in 2019 as per the Money Control.

Recent data from India have been mixed and the same push the Australia and New Zealand Banking Group (ANZ) to anticipate a rate cut from the Reserve Bank of India (RBI) in June. The ANZ bank said, “the pick-up in consumption indicators, which we highlighted last month, has now expanded to some activity indicators. While noteworthy, we do not envisage a robust recovery in the near term. Financial sector problems and excess capacity preclude a strong rebound. There is room for the RBI to deliver one more rate cut in June, but fiscal space is limited.”

Markets in Asia reached the highest in 20-month during the early-day but seem to fade the momentum strength amid a lack of major catalysts and strong prices of crude, mainly due to geopolitical tension in Libya and Iraq.

The US markets are off due to Martin Luther King’s Birthday while no major data/event is up from India and hence the qualitative catalysts will be the key to watch.

Technical Analysis

FXStreet Analysis Omkar Godbole highlights 10-day MA as the key immediate upside barrier while saying:

USD/INR jumped 0.17% on Friday, confirming a sideways channel breakout on the hourly chart. The breakout indicates the sell-off from the monthly high of 72.12 has ended. The pair, however, needs to close above the descending or bearish 10-day moving average (MA) to confirm a reversal higher.  Currently, the 10-day MA is located at 71.23. A failure to hold above the key hurdle would invalidate the breakout on the hourly chart and shift risk in favor of a re-test of 70.90.  A move through that support could bring additional losses toward 70.6990 (Jan. 14 low).