Key Moments
- The US dollar weakened after Trump canceled planned strikes on Iran and signaled a forthcoming US-Iran deal, prompting markets to cut year-end Fed tightening expectations from 24 bps to 16 bps.
- The Indian Rupee strengthened sharply as optimism over an end to the conflict pushed oil prices lower, reinforcing the currency’s close link with crude.
- Despite the recent pullback in USD/INR, the broader structural trend remains bearish for the Rupee, with dip-buyers expected to seek fresh long opportunities in USD/INR near key technical levels.
US Dollar Under Pressure as Policy Expectations Shift
The US dollar weakened broadly on Thursday after Trump called off planned military action against Iran and indicated that a deal would be signed in the coming days. This policy shift immediately altered interest-rate expectations, with markets now pricing in 16 bps of Federal Reserve tightening by year-end, compared with 24 bps before the deal was announced.
In the near term, market attention is centered on this new geopolitical development, as easing tensions have driven oil prices lower and reduced inflation worries. The next major policy event is the Federal Open Market Committee (FOMC) rate decision on Wednesday, where the Fed is expected to leave rates unchanged and remove its easing bias. The central bank is also scheduled to publish updated economic projections and the dot plot.
Investors may tolerate a somewhat hawkish tone in the FOMC communication given the recent decline in inflation risks, but sentiment could sour if policymakers appear to emphasize economic strength over the softer inflation outlook.
Looking ahead, the prevailing view is that oil prices will likely continue to decline and could return to pre-war levels. The key risk for policy is that a fading negative supply shock evolves into a positive demand shock, stimulating economic activity enough to warrant rate hikes despite lower inflation expectations. For the moment, however, markets are embracing the relief rally.
Indian Rupee Gains on Oil Retreat and Deal Optimism
On the INR side, the Rupee rallied strongly on Thursday following Trump’s US-Iran deal announcement and extended its advance as expectations grew for an end to the war.
As previously observed, the Rupee has been tightly correlated with oil prices. Positive developments on the US-Iran front have consistently supported INR, while setbacks in the situation have tended to weigh on the currency.
Oil prices continue to fall rapidly, with the deal expected to be signed on Friday and the Strait of Hormuz anticipated to reopen shortly. These factors should continue to offer short-term support to the Indian Rupee.
At the same time, the risk of a hawkish Fed has become a significant driver for USD/INR. A more hawkish-than-expected FOMC outcome on Wednesday could put renewed pressure on the Rupee, as a stronger US dollar would likely advance across major and emerging market currencies.
From a broader perspective, the Indian Rupee remains in a structurally bearish trend against the US dollar. Dip-buyers are therefore expected to monitor strong technical levels for chances to re-enter long USD/INR positions and push the pair to fresh highs over time.
USD/INR Technical Picture – Daily Chart
On the daily timeframe, USD/INR has dropped back to a key trendline and briefly moved below it on optimism around the US-Iran deal. With oil prices easing, the short-term bias has shifted to the downside, suggesting that the path of least resistance is now lower.
The initial technical focus is on the 94.00 level, which stands out as the first major downside target. Sellers are expected to look for opportunities on the lower timeframes to extend the move and push the pair to new lows.
| Timeframe | Bias | Key Level / Focus |
|---|---|---|
| Daily | Short-term bearish | 94.00 downside target |
| 4-hour | Bearish below trendline | Trendline as resistance |
| 1-hour | Bearish under minor trendline | 96.00 resistance on bullish break |
USD/INR Technical Picture – 4-Hour Chart
On the 4-hour chart, the recent selloff into the main trendline is more evident, with the pair now staging a modest pullback. There is little additional signal from this timeframe beyond the trendline itself: as long as price action holds below this key line, sellers are likely to remain in control and attempt to press USD/INR to fresh lows.
USD/INR Technical Picture – 1-Hour Chart
On the 1-hour timeframe, a minor descending trendline is currently defining the bearish momentum. Sellers are expected to step back in near the confluence of the broken major trendline and this minor trendline to defend the downside and aim for new lows.
Buyers, on the other hand, will be looking for a clear break above the minor trendline as a signal to enter, targeting a move higher toward the 96.00 resistance area as the next notable upside objective.
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