USD/INR Faces Support Test Amidst Interest Rate Expectations and Chart Breakdown
Introduction
The USD/INR pair is currently facing a crucial test as it strives to defend its immediate support level of 82.50. The Asian session has seen efforts to hold this support despite a subdued USD Index. Meanwhile, the market focus remains on the anticipation of a continued interest rate hike regime by the Federal Reserve (Fed), which could provide a boost to the USD Index. Additionally, the Indian Rupee’s performance is being influenced by expectations surrounding the upcoming interest rate decision by the Reserve Bank of India (RBI). This article provides an overview of the factors affecting the USD/INR pair and analyzes the chart patterns to assess potential future movements.
USD Index and US Debt-Ceiling Proposal
The recent pullback of the USD Index to around 104.20 comes after a significant sell-off following the approval of a raise in the US debt-ceiling proposal. This development has created concerns about the impact on the credibility of the US economy due to the higher debt burden. Despite this, investors are still expecting a continuation of the interest rate hike regime by the Fed, which could provide support to the USD Index.
Interest Rate Decision by RBI
Investor attention in India is currently focused on the upcoming interest rate decision by the Reserve Bank of India (RBI), scheduled for next week. This decision will have implications for the Indian Rupee and could potentially influence its performance against the US Dollar.
Chart Analysis and Head and Shoulder Pattern
On an hourly scale, the USD/INR pair has experienced a breakdown of the Head and Shoulder chart pattern. This breakdown suggests a prolonged consolidation period, during which institutional investors have shifted their inventory to retail participants. The 50-period Exponential Moving Average (EMA) at 82.65 is currently acting as a resistance level for USD bulls.
Bearish Momentum and Support Levels
The Relative Strength Index (RSI) (14) has entered the bearish range of 20.00-40.00, indicating a bearish momentum for the pair. Looking ahead, if the USD/INR pair continues to decline and breaks below the support level of 82.50, it could further slide toward the high of September 29, 2022, at 82.22. A breach of this level would bring the pair closer to the round-level support at 82.00.
Upside Potential and Resistance Levels
Alternatively, a decisive break above the high of May 23 at 82.97 could drive the USD/INR pair toward the high of November 3, 2022, at 83.18. Further upside momentum could potentially push the pair to test the all-time high at 83.42.
Conclusion
The USD/INR pair is currently facing a critical test as it defends its immediate support level of 82.50. The performance of the Indian Rupee is influenced by expectations surrounding the RBI’s interest rate decision, while the USD Index is expected to receive a boost from anticipated interest rate hikes by the Federal Reserve. Chart analysis indicates a breakdown of the Head and Shoulder pattern, suggesting a shift of inventory from institutional investors to retail participants. The RSI reflects a bearish momentum, further supporting a cautious outlook. Traders and investors will closely monitor support and resistance levels to gauge potential future movements of the USD/INR pair.
