USD/INR gains ground ahead of Indian Trade Balance, US Retail Sales data

• Indian Rupee loses traction despite the softer USD and lower bond yields. 
• Indian CEA said the government is worried about headline retail inflation but is confident that India can manage it well. 
• The Indian Trade Balance and US January Retail Sales will be due later on Thursday. 

Indian Rupee (INR) attracts some sellers on Thursday despite the decline of the US Dollar (USD) and lower US Treasury bond yields. The Reserve Bank of India (RBI) held interest rates steady at its bi-monthly monetary policy earlier this month, with an effort to bring down headline retail inflation to 4%, while retail inflation continues to exceed 5%. 

Chief economic advisor (CEA) V. Anantha Nageswaran said that since wholesale inflation has been eased, the Indian government is little worried about headline retail inflation, but is confident that India will be able to effectively manage it. Investors expect the RBI to maintain the hawkish stance in the near term and not to ease policy ahead of the US Federal Reserve (Fed), which might lift the INR and cap the upside of the USD/INR pair. 

The Indian Trade Balance will be due at 10:00 GMT on Thursday. On the US docket, the January Retail Sales, Philly Fed Manufacturing Index, Industrial Production, and weekly Initial Jobless Claims will be released later in the day. 

Daily Digest Market Movers: Indian Rupee remains vulnerable in the face of higher oil prices and inflation

• India's Wholesale Price Index-based inflation eased further to 0.27% YoY in January from 0.73% in December, below the market consensus of 0.53%, according to the Commerce Ministry. 
• India’s Wholesale Price Index (WPI) Food arrived at 6.85% in January versus 9.38% prior. 
• India's Retail inflation softened to 5.10% on an annual basis in January from 5.69% in December, better than the estimation of 5.09%. 
• The hotter-than-expected US inflation data last week convinced Fed officials to maintain a cautious approach as they further evaluate the trajectory of inflation in the coming months. 
• Fed Vice Chair for Supervision Michael Barr said that the Fed remains confident that US inflation is on the way to hitting the central bank's 2% target. However, Barr emphasized the necessity of further positive data before advocating interest rate cuts. 
• Fed fund futures traders have priced in an 8% chance of a rate cut in the March policy meeting, from a 76.9% possibility a month ago, according to the CME FedWatch Tool. 

Technical Analysis: Indian Rupee inches lower within the long-term trading range

Indian Rupee trades weaker on the day. USD/INR remains confined within a familiar multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the near term, USD/INR keeps a neutral bias and continues its non-directional action as the pair hovers around the key 100-period Exponential Moving Average (EMA) on the daily timeframe. It’s worth noting that the 14-day Relative Strength Index lies below the 50.0 midline, suggesting that further decline cannot be ruled out. 

A decisive break above the upper boundary of the descending trend channel at 83.20 could get enough fuel to hit a high of January 2 at 83.35, en route to the 84.00 psychological level. 

On the downside, the 83.00 psychological round mark acts as an initial support level for USD/INR. The next downside target will emerge at a low of February 2 at 82.83. A potential support level is located at the lower limit of the descending trend channel at 82.70, followed by a low of August 23 at 82.45.