USD/INR rebounds amid Middle East geopolitical risks

• Indian Rupee weakens on Monday despite the weaker USD. 
• Strong inflows into Indian equities might support the INR in near term; geopolitical risks might cap the local currency’s upside. 
• US Q1 GDP, US April PCE and Indian Q4 GDP growth numbers will be closely watched this week. 

Indian Rupee (INR) trims gains on Monday despite the softer US Dollar (USD). The INR closed at a two-month high of 83.10 on Friday, marking its biggest weekly gain in over five months, bolstered by strong inflows into Indian equities. The continuing USD inflows into domestic equities could lift the INR in the near term. However, the rise of crude oil prices and safe-haven flows amid the rising geopolitical tensions in the Middle East might boost the Greenback and create a tailwind for USD/INR. 

Investors will closely watch the first reading of US Gross Domestic Product (GDP) for the first quarter (Q1) of 2024 on Thursday and the final reading of the Personal Consumption Expenditures Price Index (PCE) for April on Friday. On the Indian docket, the GDP growth number for the fourth quarter of 2023 will be released on Friday. If the Indian economy shows a weaker-than-expected growth, this could weigh on the INR and cap the downside for the pair. 

Daily Digest Market Movers: Indian Rupee edges lower amid the cautious mood

• The Indian Rupee strengthened by the most in five months, as India’s benchmark equity indices, BSE Sensex and Nifty 50, touched record highs on Friday.
• After witnessing impressive growth rates of more than 8% for three consecutive quarters, India’s economic growth is estimated to moderate to a four-quarter low of 6.7% in the fourth quarter of 2023. 
• At least 35 people have been killed after an Israeli airstrike in the southern Gaza city of Rafah hit tents housing displaced people, the Ministry of Health in Gaza said on Sunday, hours after Hamas launched a barrage of rockets at Tel Aviv for the first time in months, per the Guardian. 
• The US Durable Goods Orders climbed by 0.7% MoM in April following a downwardly revised 0.8% advance in March. Economists had expected the figure to decrease by 0.8%.
• The University of Michigan Consumer Sentiment Index fell to 69.1 in May from 67.4 in April. Meanwhile, inflation expectations for one year rose slightly to 3.3% from 3.2%, while five-year inflation expectations dropped to 3% from 3.1%.
• Financial markets see the probability of unchanged rates rising to 46% from 35% a week earlier, according to CME’s FedWatch tool. 

Technical analysis: USD/INR resumes a bearish picture on the daily chart

The Indian Rupee weakens on the day. The USD/INR pair confirms a breakout of the neckline of the Head and Shoulders pattern that formed since March 21. The pair resumes a bearish outlook as the price is below the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) stands in bearish territory near 34.65, supporting the sellers for the time being. 

The support-turned-resistance level and the 100-day EMA at 83.20 will be a potential resistance level for USD/INR. Any follow-through buying above this level will pave the way to a high of May 13 at 83.54, followed by a high of April 17 at 83.72, and finally the 84.00 round level. 

On the other hand, a breach of the 83.00 psychological support will expose a low of January 15 at 82.78. Further south, the next contention level is seen near a low of March 11 at 82.65.