USD/INR forms head and shoulders as RBI slashes rates

The USD/INR price retreated slightly after the latest Reserve Bank of India (RBI) interest rate decision. The pair declined to 74.11, which was the lowest level since June 25.

RBI cuts interest rates

The RBI surprised the market by making its first interest rate cuts in a few months. The Indian central bank slashed interest rates from 4.0% to 3.75% in its bid to support the economy. Most analysts were expecting the bank to leave rates unchanged for the seventh straight month. It left the Reverse Repo unchanged at 3.35%.

The interest rate cut came at an important time for the Indian economy. The country is still facing a substantial crisis as the number of Covid cases remains high. 

Economic numbers have also been relatively mixed. On Wednesday, data showed that the services PMI increased from 41.2 to 45.4 in July. While this was an improvement, the number was still below the expansionary zone of 50 and the median estimate of 49.0. 

The manufacturing sector is doing relatively well, helped by Covid vaccine sector. The manufacturing PMI increased from 48.1 in June to 55.3 in July. At the same time, the country’s trade deficit widened to more than $11.23 billion as imports rose. Still, the country is still facing substantial inflation. The rate has been relatively stubborn, staying above the bank’s target of between 2% and 6% in the past few months.

The USD/INR pair will next react to the US non-farm payrolls data that will come later today. The numbers are expected to show that the economy added more than 800k jobs in July as the country continued to reopen. The unemployment rate is expected to decline to 5.7% while wages are expected to tighten.

USD/INR technical analysis

The four-hour chart shows that the USD/INR price has been under pressure lately. It has dropped by more than 1.2% from the highest level in July. Along the way, the pair has formed a head and shoulders pattern. It has also moved below the 25-day and 50-day moving average while the RSI has been in a bearish trend. Therefore, the pair will likely keep falling as investors target the next key support at 73.50.