The USD/INR currency pair has been attracting significant market attention as it approaches a crucial support area between 85.25 and 85.35. After peaking near 86.00, the US Dollar has been extending its reversal for the fourth consecutive day, while the Indian Rupee gains strength. 

This article dives into the key factors shaping this price movement, technical analysis insights, and what traders should watch closely in the coming sessions. Servelius offers expert insights and a deep dive into this topic.

Market Context: US Dollar Weakness and Rupee Strength

The US Dollar (USD) showed initial strength following the recent US-China trade agreement announcement. The deal, aimed at de-escalating the trade tensions between the world’s two largest economies, focuses on returning to the Geneva meeting consensus, which includes reducing restrictions on rare earth elements trade and lowering tariffs. However, the lack of concrete details regarding the agreement led to a tepid market reaction.

This ambiguity has limited the Dollar’s upside momentum. After an initial spike, the USD gave back gains during the US trading session, reflecting investors’ cautious stance ahead of two critical events:

• The upcoming US Consumer Price Index (CPI) release, a vital inflation gauge expected to influence the Federal Reserve’s monetary policy decisions.
• A significant US Treasury bonds auction, which could affect interest rates and risk sentiment globally.

Meanwhile, the Indian Rupee (INR) is enjoying its fifth consecutive day of gains, buoyed by the Dollar’s softness and positive domestic economic sentiment. The USD/INR pair is edging closer to the technical support zone around 85.25-85.35, making this a critical juncture for traders and investors alike.

Technical Analysis: Bears in Control, But Watch for Key Support

From a technical perspective, the USD/INR is currently correcting lower after the recent peak near 86.00. This area, touched last week, marks the upper boundary of the pair’s short-term price action. The ongoing decline suggests that bearish momentum remains intact, with the price poised to test the significant support area between 85.25 and 85.35.

This support zone is important for several reasons:

• It aligns with the lows recorded on May 28, May 30, and June 2, indicating a historical price floor.
• It coincides with the ascending trendline support originating from early May lows, which adds structural strength to this level.

The USD/INR is currently trading within an ascending triangle pattern, typically a bullish continuation pattern. However, technical indicators are painting a more cautious picture, signaling a possible breakdown below the triangle’s lower boundary. Should the pair close below the 85.25 support zone, it would likely trigger further downside pressure.

If this bearish scenario plays out, the next logical targets include:

• The May 26 and 27 lows near 84.77, a secondary support level that could offer some relief.
• A more significant test of the May 12 low at 84.25, a historically strong support point that could define the near-term bottom.

Key Technical Indicators to Watch

• Relative Strength Index (RSI) is trending downward, suggesting weakening momentum in USD/INR price gains.
• Moving Averages (MA) are indicating potential resistance near the 86.00 level, reinforcing the idea that upward rallies might be capped.
• Volume trends during recent sessions show increased selling pressure as the price approaches the support zone, confirming sellers’ interest at these levels.

Conclusion: A Crucial Support Zone in Focus

The USD/INR pair is currently at a critical crossroads, with the 85.25-85.35 support area coming sharply into focus. The sustained weakness of the US Dollar following the initial trade deal optimism, combined with investor caution ahead of key US economic releases, is pushing the pair closer to this pivotal level.

Technically, the bears appear to hold the upper hand, but the pair remains within a bullish triangle formation, leaving the door open for a reversal should new data shift sentiment. Traders must monitor the US CPI figures, Treasury auctions, and technical breaks carefully, as these will dictate whether the USD/INR continues lower toward 84.77 and 84.25 or reverses course and targets the 86.90 resistance.

In sum, the coming days promise to be critical for the USD/INR trajectory, with the support zone at 85.25 acting as a key battleground between bullish and bearish forces. Active risk management and attention to both fundamental and technical cues will be essential for navigating this dynamic market environment.