USD/INR stays below 71.00 as bulls and bears jostle over US-China trade relations

• USD/INR fails to excite bears despite the phase-one deal between the US and China.
• Traders seem to shrug off the Indian government’s likely relief in the upcoming budget.
• Doubts over the future of US-China trade relations, Indian government policies keep the pair trapped below 71.00.

USD/INR trades near 70.78, after repeated failures to take-out 71.00, during the pre-European session on Thursday. The pair fails to portray optimism surrounding the US-China trade deal and the Indian government’s expected policy measures amid skepticism.

The US and China have finally managed to sign the phase-one of the trade deal that includes China’s promise of $200 billion worth of trade balance reduction with the US and Washington cutting off Beijing from the currency manipulator risk among many clauses. However, popular media, including Financial Times (FT) and Reuters, release the terms of the deal that pours cold water on the face of US-China trade optimists.

At the domestic front, the Indian government is considering to remove the tax on long-term capital gains (LTCG) introduced amid much criticism in the FY19 budget. The Bharatiya Janta Party (BJP) ruled government also showed the intention to announce production-linked incentives (PLI) to Smartphone makers to take some chunk from China and Malaysia.

With this, the US 10-year treasury yields and most markets in Asia, including India’s own, register mild gains amid doubts over the future.

Investors will now look forward to the US Retail Sales data for November for fresh impulse. However, the US-China trade updates, as both the sides have already begun phase-two talks, will keep the driver’s seat.

Technical Analysis

The pair is less likely to register major moves unless clearing either a 200-day SMA level of 70.50 or 71.00 round-figure.