USD/INR Price Analysis: Indian rupee bears approach 79.50 with eyes on RBI, US NFP

• USD/INR remains on the front foot as buyers aim for the 21-DMA hurdle amid broad US dollar weakness.
• RSI weakness, hawkish hopes from the RBI challenge buyers.
• Second-tier US data, risk catalysts are important for fresh impulse.

USD/INR remains on the front foot around 79.40 heading into Thursday’s European session. In doing so, the Indian rupee (INR) pair prepares for Friday’s monetary policy decision from the Reserve Bank of India (RBI), as well as the US Nonfarm Payrolls (NFP) amid the US dollar pullback.

The US Dollar Index (DXY) remains indecisive around 106.35 after refreshing the weekly top with 106.82 earlier on Wednesday. That said, mixed US data and Fedspeak also appeared to have weighed on the US dollar of late. Also challenging the greenback could be the market’s cautious optimism that China could overcome the economic difficulties, especially after witnessing the previous day’s Caixin Services PMI for the dragon nation.

On the other hand, hawkish hopes from the RBI also favor the USD/INR bulls. Ahead of the RBI verdict, a Reuters poll of foreign exchange strategists mentioned, “India's rupee will trade near its historic low in the coming three months, despite a recent recovery, based on a widening trade deficit and global flows into safe-haven US dollars.”

It should be noted, however, that the latest headlines suggesting China’s actions in the Taiwan Strait appear to weigh on the market sentiment and challenge the USD/INR bulls. That said, Taiwan’s Foreign Ministry recently crossed wires, via Reuters, while saying that China is attempting to alter the status quo in the Taiwan Strait. However, Bloomberg’s news suggests the US Democratic Party members’ dissent to the US-Taiwan ties appears to tame the fears of the US-China tussles due to US House Speaker Nancy Pelosi’s Taiwan visit.

Looking forward, USD/INR may grind higher while keeping eyes on the second-tier US data for intermediate directions. Among them, the US Good and Services Trade Balance for June, expected $-80.1B versus $-85.5B prior, as well as the weekly Initial Jobless Claims, expected 259K versus 256K prior, will decorate the calendar.

Technical analysis

USD/INR bulls approach the 21-DMA hurdle surrounding 79.55, backed by the recent improvement in the RSI.

However, the RSI divergence showed via a three-week-old descending trend line on the oscillator window, appeared to challenge the bulls.

On the same line are the multiple hurdles surrounding the 80.00 threshold and the recent peak near 80.20 mark.

Meanwhile, pullback moves may initially aim for the latest trough surrounding 78.40 ahead of challenging an upward sloping support line from early April, near 78.23 at the latest. Also acting as the downside filter is the 100-DMA level close to 77.66.

USD/INR: Daily chart

Trend: Further upside expected