USD/INR Chart Pattern Signals a Drop to 78.5 is Possible

The USD/INR price pulled back this week amid a US dollar pullback. It dropped to a low of 79.28, which was much lower than last week’s high of 80.10. The Indian rupee has crashed by more than 7% from its lowest level this year and by 12% from its 2020 low. 

US inflation data ahead

The USD/INR price reacted mildly to the mixed economic data from India. According to the statistics agency, India’s inflation rose from 6.71% in July to 7.0% in August. This increase was higher than the median estimate of 6.90% and it was the highest it has been since July this year. Additional data showed that India’s industrial production rose by 2.4% while manufacturing production rose by 3.2%.

The next key data to watch will be the upcoming US consumer price index (CPI) data. Economists expect that the headline CPI dropped from 0.0% in July to -0.1% in August. It is expected to fall for the second straight month from 8.5% to 8.1%. 

On the other hand, analysts expect that core inflation remained unchanged at 0.3% on a monthly basis. They then expect that core CPI rose from 5.9% to 6.1%. Still, analysts expect that the Fed will maintain its hawkish tone in the coming months.

The Reserve Bank of India (RBI), on the other hand, is expected to slow its rate hikes. The other key catalyst for the USD/INR price will be the US producer price index (PPI) data scheduled for Wednesday and retail sales scheduled on Thursday.

USD/INR forecast

The two-hour chart shows that the USD/INR price has been in a slow downward trend in the past few days. It has managed to fall from last week’s high of 79.95 to the current 73.28. It has also moved below the 25-period and 50-period moving averages. The pair has also formed an inverted cup and handle pattern.

Therefore, the pair will likely continue falling as sellers target the next key support level at 78.50. A move above the resistance at 79.40 will invalidate the bearish view.