Fundamental Overview

USD:

The US dollar spiked higher on Friday after the August non-farm payrolls report showed job growth almost tripling the consensus estimate of 56K. The gains did not last long, however, as most of the NFP-driven moves were faded shortly afterward.

The reason is that the market's focus was not on the NFP report but on the CPI. Markets pay closest attention to the data their central bank is focused on, and the Federal Reserve is currently focused on inflation. The Fed cut rates last year and has since been weighing whether further easing is warranted, making each inflation print a key input for how traders price the policy path.

Just a day before the NFP release, Fed's Waller said he would support keeping interest rates unchanged at the upcoming FOMC meeting, but a hot CPI print would make him consider a rate hike.

This week is therefore all about the US CPI data. Unless there is a surprising breakthrough in US-Iran relations, price action will likely remain mostly rangebound or slightly positive for the greenback as traders hedge into the main event.

INR:

The Indian rupee has been completely detached from reality over the past week, rallying despite another increase in oil prices and a relatively stable US dollar. This appears to be the result of a series of RBI interventions, with three strong spikes occurring without any positive catalyst for the rupee. India imports the bulk of its crude oil requirements, which makes the rupee historically sensitive to energy prices, as higher oil widens the import bill and pressures the currency.

According to Reuters, bankers said the central bank had been increasingly active before the formal market opening, followed by interventions throughout the trading days. Previously, the RBI largely stepped in to curb weakness in the rupee; more recently, it appears to be using its interventions to push the currency higher. The same Reuters report noted that soaring NRI deposits have bolstered the central bank's capacity to support the currency.

As intervention gains are usually faded without a change in fundamentals, dip-buyers in USD/INR will likely step in soon, although a negative US CPI print on Friday could weaken the dollar across the board.

In the short term, the rupee will continue to be driven by oil prices and by hawkish or dovish repricing of Fed interest rate expectations. The pair could keep trading within its wide range for longer until the US and Iran reach an agreement and the Strait of Hormuz is reopened. The strait is one of the world's most important oil transit chokepoints, so its status has an outsized effect on crude prices and, by extension, on oil-importing economies like India.

In the bigger picture, the Indian rupee remains in a bearish structural trend against the US dollar, meaning dip-buyers will continue to look for opportunities around strong major technical levels to keep pushing USD/INR into new highs.

USDINR Technical Analysis – Daily Timeframe

On the daily chart, USDINR dropped all the way back to June lows on the back of the RBI interventions. If there is another push lower, buyers will likely step in around the key 94.00 handle with defined risk below it, positioning for a rally into new record highs. Sellers, on the other hand, will want to see the price break lower to increase bearish bets toward the 92.65 level next.

USDINR Technical Analysis – 4-Hour Timeframe

On the 4-hour chart, the price is breaking above the downward trendline that had been defining the bearish momentum. Buyers can be expected to pile in around these levels with defined risk below the recent low, targeting a pullback into the major downward trendline. Sellers will want to see the price fall back below the trendline to extend the drop into the 94.00 handle.

USDINR Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, there is little to add, though a minor resistance sits around the 94.80 level. Sellers can be expected to step in there with defined risk above the resistance to keep pushing into new lows, while buyers will look for a break higher to increase bullish bets into the major downward trendline around the 95.40 level.

Upcoming Catalysts

On Thursday, the US PPI report and US Jobless Claims figures are due. On Friday, the week concludes with the US CPI report.