USDINR Outlook Hinges on Fed Decision

  • 3 months ago
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This week is all about stimulus and bears are keeping an eye on the Federal Reserve monetary policy. The Fed will begin its two-day monetary policy tomorrow and end it on Wednesday. For the moment, the US economy requires help from the Covid-19 recession and requires more time to heal with vociferous support of fiscal spending. So, the Fed will have to continue supporting the economy through its bond-buying program and hint at purchasing more longer-term bonds to help further lower interest rates on debt like mortgages.

Traders worry that the Fed’s last interest rate decision for 2020 may shake up the near-term outlook for the US dollar. The ECB’s decision to expand the pandemic emergency purchase programme (PEPP) may put pressure on Fed officials to provide additional monetary stimulus. Fed Powell will remain committed to using the full range of tools to support the economy. But there is a risk of Congress going home for the holidays without delivering a rescue bill is growing by the day. So the fading US stimulus hopes with safe-haven dollar bids around┬áBrexit may activate the dollar bulls.

As shown in the DXY Daily Chart, after hitting more than the two-and-a-half-year low of 90.476, the greenback is currently hovering at 90.64. The RSI indicator stands at 22.4 mark which shows that dollar index is in oversold position, hence we expect some bargain buying in DXY at lower levels and give a reversal in the chart if it fails to fall below its crucial support zone of 90.40/90.30. On the upside, resistance is located at 91.25-91.70. If it consistently trades above crucial resistance of 91.70 only then the next level is around 92.40-92.85. However, we may see further weakness in if there is any positive news on coronavirus vaccine or progress over US stimulus package. Once it falls and sustains below 90.30 then next support is at 89.80-89.50.

Meanwhile, in USDINR spot the strong support zone is located at 73.50. The momentum remains sideways and consistent trading below 73.50 will push the price towards 73.25-73.0. However, if it respected 73.50 zones only then a reversal is foreseen to find crucial resistance at 74.0 and then at 74.25-74.45. Globally the progress on coronavirus vaccines has cheered risk sentiment, with the first shipments speeding across the United States as part of a historic mission to inoculate more than 100 million people by the end of March. So strong custodian inflows and hopes for coronavirus vaccine fast rollout will weigh on USDINR. However, rising coronavirus cases still remains concerns which may limit the fall.


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