USD/INR Strengthens on Upbeat US Retail Sales, Weak Domestic Markets in India

• Indian rupee loses momentum in first Asian session on Friday.
• Elevated geopolitical risks and weak Indian domestic markets undermine the INR.
• The preliminary US consumer sentiment index for August Michigan will be the highlight on Friday.

The Indian Rupee (INR) falls on Friday due to a modest recovery in the US Dollar (USD). Risk aversion in global markets amid rising geopolitical tension in the Middle East is dampening sentiment and undermining the INR. In addition, weak domestic markets and India’s foreign outflows are likely to weigh on the local currency in the near term.

On the other hand, lower crude oil prices could support the INR as India remains one of the top importers of crude oil. Speculation of a US Federal Reserve (Fed) interest rate cut in September could exert some selling pressure and act as a headwind for the pair. Later on Friday, investors will watch the preliminary US Michigan consumer sentiment index for August, building permits and housing starts. Also scheduled to speak is the Fed’s Austan Goolsbee.

Daily Digest Market Movers: Indian rupee remains sensitive to multiple challenges

• The latest Reserve Bank of India (RBI) surveys indicated an Indian economy that slowed in the second quarter and is expected to continue.
• U.S. retail sales posted better-than-expected growth in July, rising 1.0 percent on the month, compared with a 0.2 percent decline in June, the U.S. Census Bureau reported Thursday.
• The number of Americans filing new jobless claims fell 7,000 to 227,000 for the week ended Aug. 10, better than the 235,000 forecast and down from 234,000 the previous week.
• US industrial production came in at -0.6% in July from 0.3 previously, weaker than the market consensus of 0.3%.
• The President of the Federal Reserve Bank of St. Louis, Alberto Musalem, said on Friday that he believes the time is approaching when it will be appropriate for the Fed to cut interest rates, as inflation is on the way to the 2 percent target.

Technical Analysis: The underlying trend of USD/INR remains bullish

The Indian rupee is trading in negative territory on the day. The long-term bullish trend of the USD/INR pair is well established, with the price holding above the 100-day exponential moving average (EMA) and the 10-week uptrend line. The 14-day Relative Strength Index (RSI) is above the median line near 64.00, supporting buyers for now.

The psychological mark of 84.00 appears to be a tough nut to crack for buyers. A decisive break above said level could pave the way to the all-time high of 84.24. Further north, the next upside barrier is seen at 84.50.

On the other hand, a breach of the uptrend line at 83.85 could suffer downside, possibly dragging USD/INR lower to the 100-day EMA at 83.54. The next battle level to watch is 83.36, the low since June 28.