- USD/INR bulls take a breather around 20-month top, sidelined of late.
- India’s WPI inflation jumped to 12-year high, active covid cases fall to seven-month low.
- Pre-Fed anxiety grips markets, Omicron, geopolitics offer intermediate moves.
- FOMC is the key event as hawkish hopes battle virus woes.
USD/INR treads water around the highest levels since June 2020, defending the 76.00 threshold heading into Wednesday’s European session.
While hawkish hopes from the US Federal Reserve (Fed) seem to have helped the USD/INR bulls to refresh multi-month high the previous day, recently mixed catalysts and anxiety ahead of the key Federal Open Market Committee (FOMC) tests the upside momentum.
A drop in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, to 11-week low contrast with a record high Producer Price Index (PPI) for November to test Fed hawks.
Additionally challenging the USD/INR run-up is the recent easing of the covid infections in Indian and firmer inflation data suggesting the Reserve Bank of India’s (RBI) rate hike. On Tuesday, India’s WPI inflation for November jumped past 12.54% prior and 11.90% expected to 14.23% actual release. It’s worth noting that India’s active covid infections drop to the lowest since May per the latest official data published on Wednesday.
Even so, virus woes and the US-China tussles, as well as the Washington-Iran tension, keep the USD/INR buyers.
That said, the US Treasury yields and the S&P 500 Futures remain sluggish while portraying the pre-Fed market sentiment. On the same line is a mixed performance by the Asia-Pacific stocks.
Moving on, Fed’s action will be the key to watch for near-term USD/INR direction as the US central bank is up for faster tapering and signals to rate hike. However, Omicron stands ready to offer surprises.
Read: Fed Interest Rate Decision Preview: Can the FOMC satisfy and mollify the markets?
Technical analysis
Overbought RSI seems to challenge USD/INR bulls targeting an ascending resistance line from March, around 76.50. However, pullback moves remain less worrisome until breaking 75.65 support, surrounding tops marked in April and October.
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