USD/INR squander gains ahead of US PCE data

• Indian Rupee trades on a stronger note as the US Dollar recovery loses steam. 
• Indian government plans to lower deficit in the 2024-25 fiscal year despite lifting capital expenditure to an all-time high.
• The December US Core Personal Consumption Expenditures Price Index (Core PCE) will be in the spotlight on Friday. 

Indian Rupee (INR) edges higher on Friday on a modest decline of US Dollar (USD). India’s interim budget for fiscal year 2024-25 (FY25) will be announced by Union Finance Minister Nirmala Sitharaman on February 1. The Fiscal Budget 2024-25 will mainly focus on government spending and no major change is expected until a new government takes control following the general elections.

The budget is expected to target a narrowing of the fiscal deficit as a percentage of GDP to 5.30% in 2024-25. The Indian government is poised to increase welfare expenditure and might lower the budget deficit to 4.5% of GDP by the fiscal year 2025-26.

The highlight on Friday will be the release of the US Core Personal Consumption Expenditures Price Index (Core PCE) for December, the Fed’s preferred inflation measure. The Core PCE is forecast to show an increase of 0.2% MoM and 3.0% YoY. Indian markets will be closed on Friday for Republic Day.

Daily Digest Market Movers: Indian Rupee gains ground ahead of the release of Fiscal Budget 2024-25 

• Foreign investors sold nearly $2 billion in Indian equities in January, after a net purchase of $7.9 billion the previous month.
• India will continue to be the fastest-growing major economy this year and next, driven by ongoing strong government spending, according to a Reuters poll of economists. 
• The US Gross Domestic Product (GDP) grew at a 3.3% annualized rate in the fourth quarter of 2023, compared to 4.9% in the previous reading, stronger than expected
• US Initial Jobless Claims for the week ending January 20 totaled 214,000 from 189,000 in the previous week, worse than the market expectation of 200,000. Continuing Claims rose to 1.833 million from the previous reading of 1.806 million.
• The Durable Goods Orders were stagnant in December against expectations of 1.1%. 

Technical Analysis: Indian Rupee clings to the multi-month trading range of 82.80–83.40

Indian Rupee trades firmly on the day. The USD/INR pair has traded within a familiar trading band of 82.80–83.40 since September 2023. According to the daily chart, USD/INR holds above the key 100-period Exponential Moving Average (EMA). The upward momentum looks vulnerable and the further decline cannot be ruled out as the 14-day Relative Strength Index (RSI) stands below the 50.0 midline. 

The initial support level for USD/INR will emerge at the 83.00 psychological mark. The additional downside filter to watch is the confluence of the lower limit of the trading range and a low of January 15 at 82.80, followed by a low of August 11 at 82.60. On the upside, the upper boundary of the trading range at 83.40 acts as an immediate resistance level for the pair. Further north, the next upside target is located at a 2023 high of 83.47 and the psychological mark at 84.00.