The USD/INR is trading near 82.4350 as of this writing, which is a value the currency pair has not touched since the second week of June. While some analysts may say the move to higher ground yesterday and early this morning is based on the U.S FOMC Meeting Minutes, Wednesday’s report from the Federal Reserve likely only reinforced the bullish momentum which started earlier this week. The world of Forex can feel fickle, particularly when so many of the internal dynamics are hidden from a large segment of people who are trying to speculate on the results.
If the mechanics of the move higher which started on Monday are examined a couple of points should be considered closely, the low of the USD/INR was around 81.7300 on the 3rd of July. This low took place as most U.S financial institutions were on holiday in preparation for Tuesday’s 4th of July celebrations.
Fears of U.S Economic Prospects: Behavioral Sentiment and Stagflation Potential
The reversal higher since the 3rd of July has been pronounced, but before going into last weekend the USD/INR was largely trading within a consolidated manner near the 82.0000 level with a test of this mark having been displayed forcefully since the middle of June. A range of nearly 81.8500 to about 82.1500 largely has played out the past three weeks of Forex trading.
Monday’s dip in value to lows around 81.7300 took place when there was very little volume in the USD/INR market. The depths challenged marks not seen since the first week of May.
The reversal higher the past few days is certainly part of more transactional volume starting to be pumped into the USD/INR as U.S financial institutions have returned, but they are also likely being caused by an underlying nervousness within the Forex markets which may be factoring in the notion the U.S Federal Reserve seems to be on a path which will increase the Federal Funds Rate on the 26th of July.
The behavioral sentiment being generated regarding a Federal Reserve which stays in an aggressive stance started before yesterday's release of the FOMC Meeting Minutes. Nervous conditions have been on the surface of the broad markets because U.S inflation remains rather resilient - but also importantly because last week's Gross Domestic Product numbers published on the 29th of June, came in stronger than anticipated. From a troubling perspective some analysts could point to the moderately improved growth and combination of stubborn inflation as a sign stagflation is starting to shadow the U.S, which would certainly be a troubling predicament.
USD/INR Move to New Highs this Morning could Ignite more Nervous Reactions
USD/INR speculators may believe the move higher in the currency pair is overdone and that values need to be lower. However, the current price of the USD/INR is one that has been experienced quite a bit since October of 2022. A look at a one year chart shows the USD/INR has returned to higher ratios of its price range which it has experienced since breaking upwards in the middle of September 2022. And to make things more interesting for technical traders, the USD/INR has actually produced a rather stable range between 81.6000 and 82.9000 since February of this year.
While traders are certainly trying to anticipate what will happen next in the USD/INR to gain an advantage, they should remember the currency markets are almost impossible to time on a daily basis, but a look at mid-term prices does offer plenty of insights. If the USD/INR climbs too high, perhaps to the 82.5000 level the Reserve Bank of India could get a bit nervous and consider some type of intervention which it supposedly has done a few times over the past handful of months - but perhaps at higher price ratios.
USD/INR Mid-Term Considerations and the Current Price Range
However it is more cost efficient and reputably less damaging for central banks to not intervene if they do not have to, and simply let market dynamics effectively create a price for the USD/INR based on supply and demand. Meaning the current prices of the USD/INR look to be rather high, but taking into consideration the range of the Forex pair the past five months the values are not new. The prices in fact have been rather established, meaning the USD/INR may trade slightly higher, but then a lower wave of downward momentum could be anticipated.
Day traders who are gamblers may be tempted to sell the USD/INR if the currency pair finds more upwards mobility in the near-term. Trading volumes should be back to normal now that U.S financial institutions have returned from their holidays, and traders should be ready for the potential of fast price velocity developing. Risk management on wagers regarding the USD/INR are essential as always.
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