USD/INR recovers some lost ground ahead of US GDP data

• Indian Rupee weakens amid USD demand.
• USD/INR is likely to remain confined in a narrow range due to the USD inflows and the potential intervention from the RBI. 
• Investors await the US Gross Domestic Product (GDP) for Q4, due on Wednesday. 

Indian Rupee (INR) trades in negative territory on Tuesday amid dip-buying demand in the US Dollar (USD). The pair is expected to remain in a narrow trading range due to USD inflows from importers and the potential intervention by the Reserve Bank of India (RBI). Some analysts said the Indian central bank bought the Dollar throughout last week to prevent the local currency from appreciating much amid continuing inflows.

INR is likely to have additional support from MSCI-rebalancing inflows. According to Nuvama Alternative & Quantitative Research, India is expected to see $1.2 billion in passive inflows into equities after MSCI's quarterly review, which begins on February 29.

Later this week, investors will monitor the remarks from several Federal Reserve officials, along with the release of US Gross Domestic Product (GDP) for Q4 on Wednesday and the Personal Consumption Expenditures Price Index (PCE), due on Thursday. On the Indian docket, the GDP annual growth numbers and Federal Fiscal Deficit will be released on Thursday. The Indian S&P Global Manufacturing PMI for February will be published on Friday. 

Daily Digest Market Movers: Indian Rupee remains vulnerable to multiple headwinds and global factors

• India’s real GDP growth number for October-December 2023 is forecast to grow 7.0% YoY, according to Deutsche Bank. 
• The RBI has estimated Retail Inflation for FY25 at 4.5%, with Q1 at 5.0%; Q2 at 4.0%; Q3 at 4.6%; and Q4 at 4.7%. 
• Kansas City Fed President Jeffrey Schmid said the central bank is not out of the woods yet on too high inflation and there is no need to preemptively cut interest rates.
• New York Fed President John Williams warned last week about the possibility of early rate cuts, adding that the central bank is on track to lower borrowing costs later this year.
• Fed Governor Christopher Waller said the central bank should delay rate cuts by at least a few more months to see more evidence of inflation data.

Technical Analysis: Indian Rupee remains confined within a long-term trading range

Indian Rupee trades on a softer note on the day. USD/INR has remained in a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the short term, the bearish bias of USD/INR prevails as the pair holds below the crucial 100-day Exponential Moving Average (EMA) on the daily timeframe. The downward momentum is also supported by the 14-day Relative Strength Index (RSI), which lies below the 50.0 midline, suggesting that further decline cannot be ruled out. 

The short-term technical support zone is seen at the lower limit of the descending trend channel at 82.70. Any follow-through selling below 82.70, the pair could revisit the next contention level at a low of August 23 at 82.45 and a low of June 1 at 82.25.

On the other hand, the first upside barrier is located at the confluence of a psychological round mark and the 100-day EMA at 83.00. A decisive break above this level may draw in more buyers and extend its intraday upswing to the upper boundary of the descending trend channel at 83.20, en route to a high of January 2 at 83.35, and finally at 84.00.