Indian Rupee posts modest gains, focus on Fed rate decision

• The Indian Rupee trades with a mild positive bias in Tuesday’s Asian session. 
• The INR is weighed by the month-end US Dollar demand and India’s equity outflows.  
• The Fed Interest Rate Decision will be the highlight on Wednesday. 

The Indian Rupee (INR) trades stronger on Tuesday despite the recovery of the US Dollar (USD). However, the local currency remains under pressure amid month-end corporate demand for USD and substantial foreign fund outflows from Indian equities. Furthermore, the volatile Chinese Yuan and weaker sentiment contribute to the INR’s downside. 

Nonetheless, extended losses in crude oil prices might limit the downside for the Indian Rupee as India is the third largest consumer of oil behind the US and China. Investors will closely watch the US Federal Reserve (Fed) Interest Rate Decision on Wednesday. The Fed is widely expected to keep rates unchanged in the range of 5.25%-5.50% for the eighth time in a row at its July meeting. Market players will shift their attention to the Indian HSBC Manufacturing PMI and US employment data later this week, which will be released on Thursday and Friday, respectively. 

Daily Digest Market Movers: Indian Rupee recovers despite multiple challenges

• “Rupee has been continuously depreciating due to equity outflows and tracking Asian currencies. There is Dollar demand from importers. Despite the fall in the US Dollar index, the Rupee is depreciating because the market is not looking at it right now,” said V R C Reddy, head of treasury at Karur Vysya Bank.
• The final reading of the Indian HSBC Manufacturing Purchasing Managers Index (PMI) is estimated to improve to 58.5 in July from the previous reading of 58.3.
• "The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table," noted Ryan Sweet, chief US economist at Oxford Economics. 
• Investors are now seeing that the first rate cut will come by mid-September, pricing in 100% of the Fed rate cut by at least a quarter-percentage-point by then, according to data from the CME FedWatch Tool. 
• The US Dallas Fed Manufacturing Business Index came in at -17.5 in July from -15.1 in the previous reading.  

Technical analysis: Indian Rupee remains bearish in the longer term

Indian Rupee trades with mild gains on the day. The constructive bias of the USD/INR pair remains in place as the pair has held above the key 100-day Exponential Moving Average (EMA) and is depicted by an uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 61.45, indicating bullish momentum in the near term and longer term.

The all-time high of 83.85 acts as an immediate resistance level for the pair. Extended gains above this barrier open USD/INR to a move to the 84.00 psychological level. 

A resumption of the bearish swing might pave the way to the uptrend line around 83.70. The next contention level is located at 83.51, a low of July 12. The crucial support level is seen at 83.44, the 100-day EMA.