• Indian rupee loses momentum in Thursday’s Asian session.
• The Indian government’s decision to raise the capital gains tax rate has soured market sentiment and weighed on the Indian rupee.
• The most crucial event on Thursday will be the first reading of US GDP growth in the second quarter.

The Indian Rupee (INR) continued its slide on Thursday despite a weaker US Dollar (USD). The INR fell to its lowest closing level on Wednesday, pressured by a decline in Indian stocks following the government’s decision to raise capital gains tax on equity investments and derivatives transactions. Weak investor appetite for risky assets and renewed demand for the greenback could limit the local currency’s gains in the near term. However, a fall in crude oil prices and potential intervention by the Reserve Bank of India (RBI) could assist in INR’s losses.

Looking ahead, the first readings of US gross domestic product (GDP) for the second quarter are due out on Thursday. On Friday, attention will turn to the June Personal Consumption Expenditures (PCE) price index data. Any further signs of lower inflation could boost expectations for a rate cut by the US Federal Reserve (Fed) and could put some selling pressure on the USD.

Daily Market Update: Indian Rupee Weakens Despite Stronger PMI Readings

• Benchmark Indian equity indexes extended losses for the fourth straight session. The BSE Sensex fell 280 points, or 0.35%, to 80,149. The Nifty 50 fell 65 points, or 0.27%, to 24,413 on Wednesday.
• Early readings of HSBC Manufacturing PMI data for India rose to 58.5 in July from 58.3 in June. Meanwhile, the services sector PMI improved to 61.1 in the same reporting period from 60.5 in June.
• The US S&P Global Composite PMI improved to 55.0 in July from 54.8 in June. Additionally, the S&P Global Manufacturing PMI fell to 49.5 from 51.6 over the same period, weaker than the expected 51.7. Finally, the Services PMI rose to 56.0 from 55.3.
• The current US merchandise trade balance in June was -$96.0 billion, compared to -$99.4 billion in May and was lower than estimates.
• Preliminary estimates indicate that U.S. gross domestic product (GDP) will grow by 2.0% year-on-year in the second quarter, up from 1.4% growth in the previous quarter.

Technical Analysis: Indian Rupee Remains Vulnerable in Longer Term

The Indian Rupee is trading lower on the day. The USD/INR pair made higher highs and higher lows, holding above the key 100-day exponential moving average (EMA) on the daily chart, confirming the bullish structure. Moreover, the 14-day Relative Strength Index (RSI) is in the bullish zone around 63.00, suggesting there is room for further upside.

The first upside target worth looking at is the all-time high at 83.79. Bullish candles and sustained volume above this level could push the pair towards the psychological level of 84.00.

If USD/INR trades consistently below 83.65 (July 23 low), the pair could fall back to 83.51 (July 12 low). Further south, the next contentious level is seen at 83.42, the 100-day EMA.