Indian Rupee edges higher ahead of US PCE data

• The Indian Rupee recovers some lost ground in Friday’s Asian session. 
• The renewed US Dollar demand and India’s foreign outflows might undermine the INR. 
• US PCE data for June will be in the spotlight on Friday.

The Indian Rupee (INR) posts modest gains on Friday on the weaker Greenback. The month-end US Dollar (USD) demand and India’s foreign outflows drag the INR lower to an all-time low on Thursday. Forex traders said foreign fund outflows from Indian equities following the government’s decision to raise capital gains tax from equity investments and equity derivative trades might weigh on the local currency in the near term. 

However, the potential intervention from the Reserve Bank of India (RBI) might cap the INR’s downside, with support from record-high foreign exchange reserves. Investors will closely monitor the US Personal Consumption Expenditures (PCE) Price Index data for June on Friday. The headline PCE is expected to show an increase of 0.1% MoM in June, while the Fed’s preferred measure of inflation, the Core PCE, is expected to ease to 2.5% YoY in June from 2.6%. The softer PCE inflation data could pave the way for the Fed to lower its key interest rate as soon as September and might weaken the USD. 

Daily Digest Market Movers: Indian Rupee recovers, but the potential upside seems limited

• Importers have been aggressively purchasing the US Dollar to benefit from a relatively lower rate of crude oil prices in recent weeks, according to forex traders.
• US Gross Domestic Product (GDP) grew at a 2.8% annualized pace adjusted for seasonality and inflation from 1.4% in the previous reading, exceeding forecasts of 2%. 
• US Initial Jobless Claims for the week ending July 20 increased by 235K, compared to the previous week of 245K, less than the expected 238K. 
• US Durable Goods Orders dropped by 6.6% MoM in June from a 0.1% increase in May, below the consensus of 0.3%. Meanwhile, Core Durable Goods ex Transportation rose by 0.5% MoM in June, up from a 0.1% decline and better than a projection of 0.2%.
• Traders have priced in 92.8% odds that the Fed will maintain its benchmark interest rate between 5.25% and 5.50% at its upcoming July meeting next week, according to the CME FedWatch Tool.

Technical analysis: Indian Rupee remains weak in the longer term

The Indian Rupee trades with mild gains on the day. The USD/INR pair maintains the uptrend, characterized by higher highs and higher lows while holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) holds above the midline near 62.45, indicating bullish momentum. 

The immediate resistance level for the pair will emerge at the all-time high of 83.85. Extended gains above this level could take USD/INR to the 84.00 psychological mark. 

On the other hand, any follow-through selling below 83.65, a low of July 23, might drag the pair lower to 83.51, a low of July 12. The potential support level is seen at 83.42, the 100-day EMA.