The Indian Rupee (INR) bounces back against the US Dollar (USD) on Wednesday after a holiday due to the Shri Mahavir Jayanti the previous day. The USD/INR pair plummets to near 93.35 from the all-time high of 95.22 posted on Monday, as a significant de-escalation in the Middle East war, following comments from both the United States (US) and Iran signaling their willingness to end the war, has improved the appeal of risk-sensitive assets.
US and Iran are willing to end Middle East war
On Tuesday, Iran’s President Masoud Pezeshkian told European Union (EU) Council President António Costa that his country is ready to end the war with the US, but it needs certain guarantees especially no repetition of aggression, Iranian state news agency reported.
These comments from Iran came after US President Donald Trump announced that Washington is willing to end the war with Iran despite the Strait of Hormuz remaining closed, a channel to almost 20% of global oil supply. Trump added that forcing the waterway back open would mean extending the military mission beyond his timeline of four to six weeks, Wall Street Journal (WSJ) reported.
Meaningful signs of US-Iran war de-escalation have diminished demand for safe-haven assets, such as the US Dollar. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades subduedly near Tuesday’s low around 99.85. The USD Index fell almost 0.8% on Tuesday after posting a fresh 10-month high at around 100.65.
FIIs keep offloading their stake in Indian stock market
Currencies from economies like India, which are in their developing stage, rely heavily on foreign investments for a strong financial system. The consistent outflow of foreign funds from the Indian stock market has battered the Indian Rupee significantly in the past months.
In March, Foreign Institutional Investors (FIIs) offloaded their stake worth Rs. 1,22,539.89 crore from the Indian stock market due to the war in the Middle East, assuming that higher oil prices in the wake of the war would be a drag on Nifty 50 Q4FY2025-26 earnings.
US data eyed
On Wednesday, investors will focus on the US ADP Employment Change and the ISM Manufacturing PMI data for March, and Retail Sales data for February, which will be published in the North American session. Economists expect US private sector to have created 40K fresh jobs, lower than 63K in February.
The ISM is expected to report that the Manufacturing PMI will tick higher to 52.5 from the previous reading of 52.4. US Retail Sales are estimated to have grown 0.5% after declining 0.2% in January.
Technical Analysis: USD/INR retraces significantly to near 93.35
USD/INR corrects sharply from the all-time high of 95.22 to near 93.35 on Wednesday. However, the continuation of higher highs and higher lows from the 90s area suggests that the bullish structure has not broken yet. The ascending 20-day Exponential Moving Average (EMA) near 93.10 confirms a strong bullish tone.
The 14-day Relative Strength Index (RSI) falls below 60.00 after remaining inside the 60.00-80.00 zone for a longer period, indicating the suspension of the bullish momentum with the upside bias remaining intact.
Initial support emerges at 20-day EMA, which is around 93.10, followed by previous peak levels in the 92.00-92.35 range. A downside break below the range would dent the overall bullish structure and open the way towards the March 5 low of 91.35. On the upside, the all-time high of 95.22 will be the major barrier for the spot price. A decisive break above the same would boost the odds of an extension of the advance toward 96.00.
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