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USD/INR extends slide amid US Non-Farm Payrolls shock

USD/INR extends slide amid US Non-Farm Payrolls shock

Usman Ahmed,

USD/INR on Friday extended downside movement after the US Non-Farm Payroll for the month of December shocked market by posting the lowest reading since Jan 2011, however jobless rate slumped to 6.7%, the lowest in more than five years and very close to Fed 6.5% threshold.

Technical Outlook

Greenback was being traded at 61.65 against Indian Rupee in open market during US morning session on Friday. USD/INR has recently broken the short-term rising triangle formation as shown below;

usd_inr_indian_rupee_body_Picture_4.png, USD/INR extends slide amid US Non-Farm Payrolls shock

The pair is likely to find immediate resistance around 65.10 where 100 DMA, trendline resistance as well as 23.6% fib level sit-in. A break and close above this resistance zone would be challenging 69.15, the high of August 25, 2013.

On downside, support is seen around 59.52, 38.2% fib level of recent move, ahead of 58.55, weekly 55 MA, and then 56.53 which is 50% fib level. This is how the bigger picture looks like;

usd_inr_indian_rupee_body_Picture_3.png, USD/INR extends slide amid US Non-Farm Payrolls shock

Swing Analysis

The pair is poised for Lower Low (LL) after printing Lower High (LH) on daily chart, have a look below;

usd_inr_indian_rupee_body_Picture_2.png, USD/INR extends slide amid US Non-Farm Payrolls shock

Thus as per swing analysis the ongoing downside wave should end below 60.86 which is low of December 9, 2013.

Elliott Wave Pattern

This is how Elliott Wave Theory applies to recent price movement in USD/INR;

usd_inr_indian_rupee_body_Picture_1.png, USD/INR extends slide amid US Non-Farm Payrolls shock

Price has been moving in range for quite some time now thus making it a little confusing that if the highlighted portion is part of correction phase or a new impulsive phase has been kicked off. I would closely watch the current downside wave, if it ends well below 60.86, the current price movement would be considered a part of last correction wave in previous EW pattern, however if we see some significant retracement before 60.86, in that case the current wave would be the second wave of EW Impulsive Phase.

Fundamental Outlook

The US economy added only 74,000 new jobs in December, labor department surprised analysts on Friday. This was the worst Non-Farm Payrolls figure in more than 36 months. The unemployment rate, however posted its biggest slump in more than three years with 6.7% reading, very close to Federal Reserve’s 6.5% threshold.

Earlier economists had predicted 200,000 jobs creation in the month of December and they were expecting a steady 7% jobless rate in the last month of previous year. It is however pertinent that bad weather might also be responsible for unusual slump in payrolls figure, some analysts believe.

Fed has repeatedly assured that its benchmark interest rate would remain near zero for a longer period of time even if jobless rate falls below zero, but faster than expected growth and constantly improving jobless rate may push Fed to modify or strengthen its forward guidance, as some FOMC participants suggested in December meeting.

Moreover, many FOMC members were very hawkish in their stance about stimulus reduction. Economists believe that we may see continuous tapering by $10 billion in every forthcoming FOMC meeting and complete exit from QE as soon as October this year.

On the other hand, Indian Central Bank on Thursday allowed foreign investors to make use of call & put options for structuring their investment. This is a major and much awaited reform measure to boost Foreign Direct Investment (FDI), economists say.

In conclusion I would say that Rupee may gain some strength against greenback ahead of Fed January meeting, however bias for USD/INR is still bullish in long term due to US growth optimism and a wide range of challenges faced by Indian economy.

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