The USDINR spot opened the week on a higher note ahead of the FOMC policy update. There appears to have been a growing chorus that the time to talk about tapering bond purchases had been reached. The Fed’s monetary policy outcome will be released on Wednesday and the focus will be on the policymakers’ view on rising inflation and monetary policy going forward. Somewhere the fx market is positioned for an ever accommodative Fed, but the policy meeting may lay the groundwork for increased flexibility on its quantitative easing program by “talking about talking about tapering”. Looking at the recent US CPI number, Powell is expected to give some reaction over it. So there could be a risk for revival in volatility.

This week’s FOMC policy meeting is not likely to result in a change to the fed funds target rate range of 0-0.25%, nor the $120bn per month of QE purchases split between $80bn of Treasuries and $40bn of agency mortgage-backed securities. However, we will be getting updated forecasts, including the Fed’s “dot plot” chart with markets looking to see if there are any changes in the Fed’s position that elevated inflation readings will be “transitory”.

Overall, the outlook is slight dollar negative but the trend could build only if the FOMC meeting passes without much turmoil.

As seen in the chart, a strong support zone is located at 72.95/72.90 and consistent trading below 72.90 only we can see a dip towards 72.75-72.50-72.30. On the upside, 73.30 is a crucial resistance zone above which the next resistance is at 73.60-73.75.

Published in Investing.com