USD/INR snaps three-day winning spree as Oil rally hits pause

The Indian Rupee (INR) snaps a three-day losing streak on Friday, trades higher to near 86.60 against the US Dollar (USD) during the European session. The USD/INR pair corrects after posting a fresh two-month high around 86.93 on Thursday as the Indian Rupee gains, while the Oil price struggles to extend its upside after rallying for almost three weeks.

Currencies associated with nations having higher dependency on the import of Oil, such as India, become vulnerable to sharp upside movements in the Oil price.

The Oil price struggles to rise further after comments from the White House signaled that the United States (USD) will not be involved in the Middle East conflict immediately. Apparently, the development has diminished demand for safe-haven assets, such as the US Dollar.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to near 98.60 during European trading hours on Friday from the weekly high of 99.15 posted the previous day.

However, investors should be cautious about going all-in on the Indian Rupee as its outlook remains uncertain, given that the conflict between Israel and Iran is intact. Such a scenario will continue supporting the Oil price and will keep the scope for more upside wide open.

Meanwhile, Foreign Institutional Investors (FIIs) have remained net sellers this month despite investing Rs. 3.308.32 crores in India’s equity market, according to data from exchanges. The scenario of FII outflows bodes poorly for emerging markets, such as India.

Daily digest market movers: Indian Rupee recovers sharply as US signals no immediate plans to strike Iran

• The Indian Rupee opens on a bullish note against the US Dollar on Friday as the latter faces selling pressure amid an erosion in its safe-haven demand.
• The White House signaled on Thursday that Washington will not strike Iran immediately and will decide on that in the next two weeks. “Based on the fact that there is a substantial chance that negotiations may or may not take place with Iran in the near future, I will make my decision whether or not to go, within the next two weeks,” Press Secretary Karoline Leavitt said on the behalf of US President Trump, ANI News reported.
• Market sentiment soured significantly on early Thursday after a report from Bloomberg showed that the US is considering striking Iran as early as this weekend.
• Meanwhile, Tehran has warned that the US joining the Israeli Defence Forces (IDF) would cause "hell for the whole region", Iran's deputy foreign minister Saeed Khatibzadeh said, BBC reported. Khatibzadeh added that the US involvement would turn the “conflict into a quagmire".
• On the domestic front, investors seek cues about when the Federal Reserve (Fed) will start reducing interest rates after leaving them in the current range of 4.25%-4.50% on Wednesday. According to the CME FedWatch tool, the Fed will hold interest rates steady in the July meeting and will reduce them in September.
• Following the interest rate decision, Fed Chair Jerome Powell warned that tariffs imposed by President Donald Trump have accelerated goods inflation, and it will pick up again this summer. “We’ve had goods inflation moving up a bit and expect to see more of that in summer,” Powell said.
• Going forward, investors will focus on the preliminary HSBC India and S&P Global US Purchasing Managers’ Index (PMI) data for June, which will be released on Monday.

Technical Analysis: Indian Rupee stays below 20-day EMA against US Dollar

The Indian Rupee rises to near 86.60 against the US Dollar on Friday. The USD/INR pair faces selling pressure after failing to reclaim the key resistance of $87.00 on Thursday. However, the near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.03.

The 14-day Relative Strength Index (RSI) breaks above 60.00, suggesting that a fresh bullish momentum has been triggered.

Looking down, the 20-day EMA is a key support level for the major. On the upside, the April 11 high of 87.14 will be a critical hurdle for the pair.