USD/INR remains stronger ahead ISM Services PMI

• The Indian Rupee loses momentum in Monday’s early European session. 
• The risk-off sentiment, significant foreign outflows and US Dollar demand exert selling pressure on INR. 
• The US ISM Services PMI data for July will be in the spotlight on Monday.  

The Indian Rupee (INR) remains under pressure after falling to an all-time low at the open on Monday. The sell-off of the INR is backed by the risk-off environment, foreign outflows from India and other emerging markets, and US Dollar (USD) demand from importers. However, the FOMC’s dovish hold and weaker US July employment data might weigh on the Greenback and cap the pair’s upside. Furthermore, the Reserve Bank of India (RBI) is expected to intervene foreign exchange market to prevent the local currency from depreciating. 

Looking ahead, investors will monitor the US ISM Services Purchasing Managers Index (PMI) on Monday, which is projected to improve to 51.0 in July from 48.8 in June. On Wednesday, the RBI interest rate decision will take centre stage, with no change in rate expected. 

Daily Digest Market Movers: Indian Rupee remains vulnerable amid multiple headwinds

• Indian stock market benchmarks, the Sensex and the Nifty 50 faces some sell-off on Monday amid US recession fears and rising tensions in the Middle East. Around 6.45 GMT, the Nifty 50 was 2.70% down at 24,055, while the BSE Sensex was 2.78% down at 78,735.
• Indian HSBC Services PMI declined to 60.3 in July from 60.5 in the previous reading, weaker than the 61.6 estimated. 
• "Service sector activity rose at a slightly slower pace in July, with new business increasing further, primarily driven by domestic demand. Looking ahead, services firms remained optimistic about the outlook for the year-ahead," said Pranjul Bhandari, chief India economist at HSBC.
• The US Nonfarm Payrolls (NFP) increased by 114K in July, down from the revised-lower-figure of 179K in June and below the estimate of 185K, the Labor Department reported on Friday.
• The US Unemployment Rate rose to 4.3% in July from 4.1% in June, the highest level since November 2021. 
• The Average Hourly Earnings eased to 0.2% month-over-month in the same reported period, below the market consensus of 0.3%. On an annual basis, the figure decreased to 3.6% from the previous reading of 3.8%.
• Financial markets have priced in nearly 74% odds for a 50 basis-point (bps) cut by the Fed at the September FOMC meeting. 

Technical analysis: USD/INR’s bullish bias maintains strength

Indian Rupee weakens on the day. The positive stance of the USD/INR remains intact, with the pair holding above the key 100-day Exponential Moving Average (EMA) and being supported by the uptrend line since June 3 on the daily chart. The upward momentum is also underpinned by the 14-day Relative Strength Index (RSI), which stands above the midline near 65.0, suggesting a further upside looks favourable. 

A decisive bullish breakout above the all-time high of 83.85 will attract some buyers to the 84.00 psychological level, followed by 83.50. 

The first downside target emerges near the uptrend line around 83.75. A breach of this level will see a drop to 83.51, a low of July 12. The potential support level to watch is 83.47, the 100-day EMA.