USD/INR seesaws around 21-day EMA amid trade/political fears

The USD/INR pair’s initial declines to 21-day Exponential Moving Average (EMA) fails to last long as the quote recovers to 71.62 amid the initial hours of the Indian trading session on Tuesday.

Monday’s broad US dollar’s (USD) weakness and traders’ pricing for the Reserve Bank of India’s (RBI) rate cut seem to exert downside pressure on the pair. On the contrary, the United States (US) driven challenges to the global trade mechanism, via threats to tariffs on the European Union (EU), China and South American nations, keep the prices under check. Additionally, China’s retaliation to the Hong Kong Act, via threats of banning diplomatic entry and sanctioning Non-Government Organization, added fears to the market sentiment.

Risk tone stays on the back foot with the US 10-year treasury yields seesaws near 1.83% and S&P 500 Futures cheering the announcement from the Japanese announcement concerning the economic stimulus package.

It’s worth mentioning that the recently downbeat growth figures push the Indian central bank to announce another rate cut, following a no rate change in November and a fifth consecutive rate reduction in October. However, not all is bad as inflation figures have started responding to the government’s fiscal measures and readiness to boost foreign investment limits.

While no major data is up from either the US or India ahead of Thursday’s RBI meeting, Friday’s US employment figures could drive markets afterward. Though, one shouldn’t undermine the trade/political headlines’ ability to move the pair.

Technical Analysis

Pair’s break below 21-day EMA level of 71.53 can drag it back to 61.8% Fibonacci retracement of November month upside, near 71.20, whereas buyers will avoid entry unless clearing 23.6% Fibonacci retracement, around 71.93.