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  • USD/INR consolidates weekly gains while declining for the second consecutive day.
  • US dollar weakness extends amid risk-on mood, stimulus/vaccine hopes.
  • Indian Trade Deficit, US inflation decorates calendar, Fed’s Powell will be eyed as well.

USD/INR holds lower ground near 72.85 during the early Wednesday. In doing so, the Indian rupee pair extends the previous day’s losses while trimming the weekly upside. It’s worth mentioning that the quote ticked below the September 2020 low of 72.76, to test the lowest since March of the last year, during Friday.

The USD/INR weakness has as much to do with the US dollar weakness as concerning the upbeat trading sentiment in India, especially after the annual budget release. Also favoring the quote could be the risk-on mood that backs the emerging market currencies despite fears of reflation.

That said, the US dollar index (DXY) takes offers near the lowest since January 29 while declining for the fourth day in a row. The greenback gauge eased during the last week after the US 10-year Treasury bonds snatched the USD’s market favorite spot. The yields on the key Treasury bonds jumped, with the 10-year counterpart rising to the highest since March 2020, amid fears of central bank actions to tame the likely inflation due to the heavy covid measures deployed globally while some extra moves are still in the pipeline.

At home, the Indian government’s annual budget for the fiscal year 2020-21 recently pleased equity buyers with promised of extra spending and a huge amount for vaccinations. That said, the bourses marked a six-day winning streak before easing the previous day, currently up carrying small gains.

To confirm the reflation bets, today’s US Consumer Price Index (CPI) and a speech by Fed Chairman Jerome Powell will be the key. Also important is the Indian Trade Deficit figures for January, prior $15.44B.

Should the US CPI ease, USD bulls will eye for the Fed Chair Powell to push the back impulsive measures feared mostly. Also, further extension in the Indian trade deficit can mark extra consolidation near the multi-month low.

Technical analysis

USD/INR bears need a confirmatory downside past-72.75 to eye the January 2020 top near 72.20. Alternatively, bulls look for entries beyond a one-month-old resistance line near 73.05.