USD/INR bears attack a confluence support level ahead of dovish RBI

USD/INR is currently trading -0.42% having travelled from a high of 71.7002 to a low of 71.3540 on renewed hops of a Sino/US trade deal, a softer US dollar and ahead of the Reserve Bank of India meeting. 

The RBI is expected to cut rates for the sixth consecutive time as the growth outlook in the nation remains bleak after recent data revealed economic growth slowed to a six-year low in September.

Growth in India’s economic output slowed to 4.5% in the three months that ended in September. What is most concerning, is that this marked the slowest pace of expansion in six-years while the nation faces a number of challenges, with industrial production clocking its worst decline in eight years as well as the crisis in the financial sector which has put a brake on lending. 

The ratings agency, Moody’s, downgraded the outlook on India’s from “stable” to “negative,” and cited growing risks that economic growth will remain “materially lower than in the past.” The RBI has been tipped to reduce rates further by 50 basis points for the full fiscal year, including a 25 basis point cut this week. 

Bad (trade) news is good news for India

Meanwhile, there has been some noise on the trade war front yet again which has been supportive to risk appetite whereby a Bloomberg article reported that people familiar with the matter had said a trade-deal was in the making. 

The saga trade war is a complicated mix for India considering, the global growth outlook is hindered as would be investor's appetite for emerging markets on negative headlines. However, there is also the argument that there can be increasing scope for diversion of global foreign direct investment and manufacturing away from China, emerging market economies such as India can benefit from such a change in course of money flows. A Reserve Bank of India study said that,  in turn, it may, "help strengthen domestic manufacturing base for exports and improve global value chain (GVC) participation."

USD/INR levels

The pair is challenging the 23.6% Fibonacci retracement level of the early July lows to September highs where it also meets a confluence of the 21-day moving average. Bears, if able to penetrate the reinforced Fibo level, will look for a test of the 50-day moving average and prior double bottom lows at 71.18/06 respectively. This area of support guards a run to the 200-day moving average and a 50% mean reversion/double bottom Nov lows in the 70.20s. On the upside, the 13th and 14th Nov daily double top highs come in at around 72 the figure which meets the Oct to YTD trend line resistance, guarding 72.42 YTD highs.