USD/JPY forecast as Goldman Sachs turns bullish on the Indian rupee

The Indian rupee retreated slightly against the US dollar on Monday as geopolitical tensions rose and after the US published a strong jobs report last week. The USD/INR exchange rate was trading at 95.2900, down modestly from the year-to-date high of 96.90.

Goldman Sachs turns bullish of the Indian rupee

Analysts at Goldman Sachs believe that the Indian rupee may be about to plateau against the US dollar in the near term. In a note to investors this week, the bank said that actions by the government and the Reserve Bank of India (RBI) may help to offset more weaknesses.

The bank believes that the USD/INR pair will remain in a tight range in the near term, ending a prolonged period in which the pair surged to a record high this uear. 

Still, there are some notable risks for the Indian rupee. One of them is the fact that the crisis in the Middle East will not end soon now that talks between the US and Iran have stalled. 

Tensions in the region have risen after Israel launched attacks against Iran on Sunday. This action was a response to Iranian missile and drone attacks across the region. Iran attacked key countries like Kuwait and Bahrain.

These actions have put Trump in a bind as he is cautious of restarting the war against a country that maintains a huge arsenal of weapons. US intelligence authorities warned that Iran maintains over 70% of its arsenal. 

The ongoing developments have led to a jump in crude oil prices, with the West Texas Intermediate (WTI) and Brent nearing the crucial resistance at $100. There is a risk that prices will continue rising, a move that will affect India, a country that imports most of its oil. 

US inflation numbers ahead

The next important catalyst for the USD/INR exchange rate will be the upcoming US consumer inflation report that comes out on Wednesday. Economists expect the data to show that the headline CPI jumped to 4.2% in May, while the core number crossed the 3% milestone.

If this view is correct, it will push the Federal Reserve to intervene by hiking interest rates later this year. Some economists are predicting that the bank will deliver at least two hikes this year. 

Three labor reports released last week showed that the situation was improving in the US. A report released on Tuesday revealed that the job vacancies soared by over 700k in April. Another report by ADP showed that the private sector added 122k jobs, while another one by the Bureau of Labor Statistics showed that the economy created 172k jobs. 

USD/INR technical analysis

USDJPY chart | Source: TradingView

The daily chart shows that the USD to INR pair has remained in a narrow range in the past few days. It has sunk below the important support level at 96 and the lower side of the ascending channel. That is a sign that bears have prevailed.

However, the pair remains above the 50-day Exponential Moving Average, which has provided it with substantial dynamic support since October last year. As such, the bullish outlook will remain as long as it is above the 50-day EMA.