USD/INR remains tied to oil prices with US-Iran talks in the spotlight

FUNDAMENTAL OVERVIEW

USD:

The US dollar came under pressure early in the week, pressured by a steep decline in oil prices on rising hopes for a de-escalation and an earlier resolution of the conflict ahead of the UN General Assembly.

Those expectations faded after the UN General Assembly, where President Trump reiterated that the US would strike a deal with Iran after the November elections. His remarks reduced optimism for a near-term settlement and contributed to a rebound in oil prices.

Risk sentiment then worsened, with the dollar strengthening broadly and extending gains on Wednesday after the US Flash PMIs far exceeded expectations. The data led to further hawkish repricing, pushing Treasury yields to new highs.

Market focus is now on revived hopes for a swift de-escalation and the reopening of the Strait of Hormuz, following news that Iran has presented a fast-track offer, committing to reopen the strait within seven days if the US meets its demands. Iran's Foreign Minister Abbas Araghchi remains in New York over the weekend, awaiting a US response.

A breakthrough would be negative for the US dollar in the short term, as bets on aggressive rate hikes are likely to be scaled back. Conversely, a prolonged standoff or a re-escalation would probably continue to support the greenback and push it to fresh highs.

INR:

On the Indian rupee side, the currency has tracked crude oil closely this week, strengthening ahead of the UN General Assembly on expectations of a quick resolution and weakening when oil prices rebounded as optimism faded.

Higher oil prices are detrimental to the rupee because India imports the bulk of its crude. A larger oil bill raises demand for dollars, widens the trade deficit, and pressures the rupee lower.

In the near term, oil prices will remain the key driver for the rupee, making US-Iran negotiations crucial. A deal could give the rupee a boost, possibly driving USD/INR back to the 95.10 support level fairly quickly. Alternatively, an extended stalemate or re-escalation would likely keep the pair supported and push it to new highs.

Longer term, the rupee remains on a bearish structural path against the US dollar, so buyers on dips will continue to look for entries at strong technical levels to drive USD/INR to fresh highs.

USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME

USDINR is trading near the major resistance zone around 96.10. Sellers are expected to keep stepping in around this resistance, with a defined risk above it, targeting a decline back to the 95.10 support. Buyers, meanwhile, want to see a breakout above resistance to increase bullish bets and aim for new record highs.

USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

In the four-hour view, an ascending trendline defines the bullish momentum. If the price pulls back to the trendline again, buyers are likely to lean on it, with risk defined below, to keep pressing higher. Sellers will look for a break below the trendline to add short positions and target the 95.10 support.

USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the hourly chart, buyers have a better risk-reward setup near the trendline, while sellers want to see a break for new lows. However, a move above the recent high near 96.40 could boost bullish momentum, especially if accompanied by a surge in oil prices from negative US-Iran developments.

UPCOMING CATALYSTS

Today there is no economic data scheduled, but traders will closely watch US-Iran developments after yesterday's proposal to reopen the Strait of Hormuz under certain conditions.