By Dilip Parmar
It was another week of consolidation as the rupee oscillated between 82.90 to 82.45. Last week was volatile after a lacklustre December month, as we have seen a breakdown and recovery in the spot USDINR. Now is the time to go for a short in the pair as most EM currencies started strengthening against the dollar, and its rupee’s turn to catch up. The emerging-market currency advanced for a third-straight week on optimism that China’s pivot to pro-growth policies will offset pressure on the global economy. The economic data, lower crude oil prices and the dollar index all signalling lower USDINR.
On Friday, a gauge of the dollar’s strength erased most of the weekly gains, after US jobs data showed slower-than-expected wage gains and a surprising weakness in the services sector, raising hopes the Federal Reserve might slow the pace of interest-rate hikes. However, the greenback manages to start the 2023 year on a positive note after three weeks of decline. Going ahead, if history repeats, more dollar volatility can be expected this week after the US inflation data.
A bullish inverted hammer is forming on weekly charts of the ICE dollar indexes, which is unusual. One formed in November just before the dollar collapsed. Before that, the last time this type of candle formed at the end of trading in a week was in 2016. Technically, a bullish hammer is a much better way of picking trend reversals than an inverted one.
The flow was the selling of 16.2k euro, yen (9.1k), and sterling (9.4k) contracts while buying Swiss (1.3k) and CAD (3.3k). All in, the aggregate dollar short fell by $3.5 billion. However, the recovery in the risky assets could weigh on the dollar in the coming week. All eyes will be on US and India CPI data due this week which will be the key driver for the dollar movement.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)