USD/INR should rally towards 64.8

Our lives are a roller coaster of emotions. Markets in general, are a reflection of the collective at a point of time. Markets, as in life, more or less follow a trend (sometimes boring) until an unexpected outcome jolts it to course correction. The fancy word that describes this is called "black swan" events. Such events normally reshape perception for both "short term' and in some cases for long to very long term.

Great British pound (GBP) /US dollar (USD) has changed course ever since British referendum voted for the "Brexit". The outcome was extraordinary and it's been shaping and reshaping the way this pair has moved in the past. I had to mention this, as we prepare for outcome of British snap elections based on the "Brexit" theme.

Latest predictions are contradictory to earlier estimates of incumbent prime minister's landslide victory. A cursory look at the weekly charts suggests a temporary "top" is in place around 1.3050 pivot. Good support area remains around 1.2650. We expect GBP/USD pair to reflect sentiments on the ground and move towards 1.2650 from the current levels. Snap election outcome will be the major single factor which could undo my perception.

US president Donald Trump's victory also is another event which was watched out for keenly. The so called "Trump trade" saw the Dollar Index surge to a high of 102.11 has been sliding on the so called unwinding of Trump trade. Technically, it's been getting solid support around 96.95 and any breach of this would take the Ddollar Index towards 95.44. We expect dollar to hold ground (at least technically for now) around 96.95, despite Trump's pyrotechnics in matters of policy.

India has been a darling of sorts for foreign investors on account of promise of growth, a progressive outlook towards investing, government's zeal for various reforms aiming at investor comfort, under- penetrated consumer market, presence of an upwardly mobile middle class, stable exchange rates, favourable risk-free interest rates and so on.

In this financial year alone, foreign institutional investors (FIIs) have bankrolled net US$ 7.5 billion into India. However, the real GDP growth slowed down in Q4 to 6.1% (due to adverse impact of demonetization) and for the FY 2016/17, real GDP growth reading came out at 7.1% below consensus expectations. On the interest rate front, a benign CPI reading for April (2.99%) has revived hope for a rate cut in the forthcoming policy announcements by the Reserve Bank of India( RBI).

The movement in yields, especially the benchmark 10-year yield has already retreated to 6.66% from a recent high 6.99%. Favourable prediction for oncoming monsoon has also helped here. Personally, I may not be expecting any rate cut in the forthcoming policy. In FY 2017, the rupee has appreciated around 3.69% against the US dollar, which is more or less comparable with other Europe, Middle East and Africa currency pairs.

Technically speaking, recent appreciation of the rupee has halted just around 64.3000 pivot, which was roughly the target set from the "double top". If this area holds, USD/INR pair should rally towards 64.8000 and further towards 65.3000 in the coming weeks.

In a nutshell, We aim for dollar consolidation, mild rupee depreciation against the US dollar and downward movement in GBP, in the coming days/weeks.

The writer is senior regional head - treasury advisory group, HDFC Bank.