Indian Rupee Gains on US Tariff Rollback Proposal, Nifty 50 to Follow?

INDIAN RUPEE, USD/INR, NIFTY 50, US-INDIA TRADE, CORONAVIRUS - TALKING POINTS

• Indian Rupee and Nifty 50 rising as global market mood improves
• US-India trade news may have been recent catalyst behind gains
• USD/INR eyes key support, Nifty 50 trades within bearish pattern

The Indian Rupee, like most currencies, has been capitalizing on weakness in the haven-linked US Dollar as global market sentiment continues to rebound. The Nifty 50, India’s benchmark stock index, is also no exception. Yesterday, it extended the rebound from earlier this year, closing at its highest since early March. Recent gains may have been compounded by US-India trade news.

On Monday, India reportedly asked the US for concessions on generic drugs it ships there. In exchange, it offered to roll back tariffs on certain US agricultural products. This could be welcoming progress in a highly uncertain environment. As a reminder, last year tensions between the two nations were simmering as US President Donald Trump and Indian Prime Minister Narendra Modi lobbed tariff threats against each other.

This announcement may have followed from talks between the two countries last week. That is when India’s Trade Minister Piyush Goyal and US Secretary of Commerce Wilbur Ross discussed the possibility of a free-trade pact. Meanwhile in the background, worrying developments are brewing. India recently surpassed one million confirmed coronavirus cases.

On Monday IndiGo, the nation’s top airline, cut staff by 10 percent as the company struggles with reduced airfare as a result of the coronavirus outbreak. The future also doesn’t seem to be bright as the mean estimate for fiscal 2021 GDP is around -3.9% y/y, according to Bloomberg. Disappointing earnings from tech companies from the US can dent global sentiment, potentially hurting the Nifty 50 and Rupee.

INDIAN RUPEE TECHNICAL ANALYSIS

USD/INR may be on its way to retest key support at 74.48 which is the high from 2018. Prices bounced off this price at the beginning of July after breaking under key support at 74.94. A drop through the former could open the door to testing 73.56, the close from March 10. The medium term technical outlook appears bearish after a “Death Cross” formed in June.

That is when a short term moving average crosses under a long term one. This is typically a bearish signal. In the event of steeper losses in USD/INR, rising support from 2019 could reinstate the dominant uptrend – red parallel lines on the daily chart below.

USD/INR DAILY CHARTUSD/INR Chart Created in TradingView

NIFTY 50 TECHNICAL ANALYSIS

While the Nifty 50 continues to set new highs since March, recently negative RSI divergence emerged. This is a sign of fading upside momentum which can at times precede a turn lower. Furthermore, the Nifty continues to trade within a Rising Wedge, which is a bearish chart pattern. Prices paused gains on the key inflection point at 11036. Further gains may open the door to testing the 11384 – 11614 inflection zone ahead.

NIFTY 50 DAILY CHART

Nifty 50 Chart Created in TradingView

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