The Indian rupee continued its strong downward trend as the rising US dollar and bond yields affected the country’s economy. The USD/INR exchange rate has risen for 11 straight weeks and is trading at a record low of 86.53. It has jumped by over 4% in the last twelve months. So, what is the outlook of the rupee as the DXY index soars?

US dollar index and yields are rising

The USD/INR exchange rate continued its strong surge this week as the market focused on the strong US dollar and bond yields. 

These assets jumped after the US published a strong jobs report on Friday. According to the statistics agency, the economy added over 256,000 jobs, while the unemployment rate fell to 4.1% in December. 

The next key data to watch will be the upcoming US inflation data scheduled on Wednesday this week. These numbers are expected to show that the headline Consumer Price Index (CPI) rose from 2.7% in November to 2.9% in December. Core inflation is expected to remain at 3.3%, where it has been stuck at in the past few months.

The US has some inflationary catalysts that could delay the return of inflation to the 2% target rate. For example, the ongoing Los Angeles fires will worsen insurance inflation in the country. That fire will also lead to higher accommodation cost in the biggest state in the country.

The other big factor impacting inflation is the policies of the incoming Donald Trump administration. Trump has made some proposals that will be inflationary in the long term. For example, he has pledged to slash taxes, including eliminating tipping taxes. 

He also wants to deport millions of undocumented migrants, many of who work in industries like construction, agriculture, and hospitality. Deporting these people may lead to higher inflation as companies are forced to hike prices. 

As a result, analysts have started paring back their rate cut expectations. ING analysts have reduced their expectations from three to two, while Bank of America sees no cuts after all.

Potential dovish Reserve Bank of India

The USD/INR pair has soared as investors anticipate a potentially dovish Reserve Bank of India (RBI) now that the economy is slowing. A recent report showed that the economy grew by 5.4% in the third quarter, the slowest growth rate in seven quarters. 

The Indian government expects the economy to expand by 6.4% in 2024, much lower than the 8.2% in 2023. This is a sign that the economy is slowing, as the much-anticipated investments failed to materialize.

Odds of a more dovish Reserve Bank of India rose after the country announced weak inflation numbers on January 13. These data showed that the headline Consumer Price Index dropped from 5.48% in November to 5.22% in December. It hs dropped for two straight months.

Therefore, the USD/INR pair has risen as investors anticipate an ongoing divergence between the Fed and the RBI. The RBI will maintain its dovish view, while the Fed will be a bit hawkish as US inflation falls. 

USD/INR technical analysis

The weekly chart shows that the USD to INR exchange rate continued its strong rally this year. It has moved above the strong pivot reverse of the Murrey Math Lines. 

The pair has risen above all moving averages, while the Relative Strength Index (RSI) has jumped to the extreme overbought level of 88. 

It has also crossed the key resistance point at 83.26, the previous all-time high. Therefore, the USD/INR pair will likely continue rising as bulls target the key resistance level at 90.

The pair is highly overbought, so it is likely to pull back in the next few weeks. A big drop would see it settle at 83.26. 

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Indian stocks have struggled this year, with the Nifty 50 index falling to ₹23,200 from last year’s high of ₹26,300. Similarly, the BSE Sensex index has moved from a high of ₹86,020 to ₹76,745.

The smaller Nifty Next 50 index has been the worst performer as it entered a bear market after falling by 20% from its highest level in 2024. 

Indian stocks have fallen at a time when the rupee has crashed to a record low and the country’s government bond yields have pulled back. The ten-year yield has dropped to 6.8% from 7.615% in January 2022. Similarly, the 30-year has dropped from 7.92% to 7.1%. So, what next for the Nifty Next 50 index?

Nifty Next 50 index analysis

The daily chart points to more Nifty Next 50 index analysis. It has crashed from last year’s high of ₹26,308 in December to ₹23,200. 

The index has crashed below the lower side of the ascending trendline and the key support at ₹23,280, its lowest swing in November 21. Moving below that level was notable because it invalidated the double-bottom chart pattern.

Most notably, it has formed a death cross as the 50-day and 200-day Weighted Moving Averages (WMA) have crossed each other. This pattern often leads to more downside in the long term.

The index has formed a rising broadening wedge pattern, leading to more downside over time. This pattern is formed by two rising and diverging trendlines. 

Therefore, the Nifty Next 50 index faces major technical headwinds that may push it much lower in the near term. If this happens, the next point to watch will be at ₹20,000, which is about 14% below the current level. Conversely, a move above the key resistance at ₹23,500 will point to potential gains. 

Most Nifty Next 50 stocks have crashed

A closer look at the Nifty Next 50 index shows that most companies are deeply in the red this year. Only companies like ICICI Lombard, LTIMindtree, Cholamandalam, Godrej Consumer, and Adani Power have surged.

The worst-performing Nifty Next 50 index company is JSW Energy whose shares have dropped by about 15% this year. JSW is a leading player in the utility industry, operating thermal and renewable energy plants in the country. This crash happened after the company announced that it was acquiring O2 Power in $1.47 billion. 

Infoedge India is a top Indian company that offers several brands like Naukri, 99acres, and AmbitionBox, has dropped by 15% this year, erasing some of the gains made last year. 

The other top laggard in the Nifty Next 50 index is United Spirits whose stock is down by 14.1% this year. Union Bank of India, InterGlobe Aviation, Varun Beverages, Macrotech Developers, and Zomato stocks have crashed by over 10% this year.

There are signs that many Indian retail investors have started to take profits after the Nifty Next 50 index surged to a record high. Investors are also concerned about the plunging rupee and the slowing economy. 

Recent data showed that the economy grew by just 5.4% in the third quarter of last year. Goldman Sachs analysts expect the economy to grow by 6% in the current year, while the IMF expects it to grow by 6.5% in the next few years. If this trend continues, it means that Modi’s goal of making it a developed country by 2047 will be unachievable.

Therefore, it is likely to continue falling, especially now that investors are making over 5% returns on US government bonds. 

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Boohoo share price remained under intense pressure this year as its attempts to bounce back have found substantial resistance in the past few years. It dropped to 29.20p, down from last month’s high of 39.45p. So, will Boohoo’s underperformance continue this year?

Boohoo’s business has struggled for years

Boohoo, the parent company of Debenhams, PrettyLittleThing, Nasty Gal, and Karen Mille, has been one of the worst-performing British companies since 2021. 

The company’s business started to implode during the pandemic when media reports about its working conditions in Lancaster emerged. 

Boohoo has solved some of those issues, but its challenges have continued. Its sales growth ended, and the company experienced a loss. 

At the same time, the firm experienced higher customer returns, which have continued to affect its profitability. Competition from companies like Temu and Shein has also hurt its business, while soft consumer spending has contributed. 

Boohoo’s underperformance is notable because other British retailers, such as Next PLC, Tesco, and Marks and Spencer, have performed well. Similarly, traditional fast-fashion companies like Inditex and H&M have performed modestly well. 

Boohoo’s management has now moved to assess strategic alternatives for the company. One option being considered is to spin off some of its businesses. Spin-offs are often seen as better options for struggling companies because they help them focus on the most profitable businesses. 

Another option, which management has not mentioned, is selling the company now that its turnaround measures are not working. A potential deal would be to sell to Mike Ashley’s Frasers Group. Ashley has become one of the company’s biggest shareholders and is seen as a potential acquirer. 

He recently lost a vote to become a board member and the company’s CEO. As such, he is likely to launch an unsolicited offer for the firm in the next few months since he sees the company being undervalued.

Revenue and profitability slowdown

The most recent financial results showed that its business struggled in the last financial year. Its gross merchandise value dropped by 13% to £1.8 billion, while revenue fell by 17% to £1.46 billion. 

Its business has continued to experience substantial losses in the past few years. It made an annual loss of £159 million before tax, up from £90.7 million in the previous financial year.

Management has continued to blame the macro-environment for affecting consumer spending. As such, the company may benefit if the Bank of England continues cutting interest rates this year. 

Also, there are signs that traffic to its website is growing, which could lead to more revenue. According to SimilarWeb, traffic rose by 8.67% to 11.8 million in December. 

Additionally, the management is working to slash costs, including cutting administrative costs by 20%. 

Boohoo share price analysis

The weekly chart shows that the BOO stock price has gone sideways in the past few years, with attempts to rebound facing substantial resistance. It has found a support at $26.25, where it failed to drop below since 2023. 

This consolidation could be a sign of potential accumulation, which may lead to a strong rebound in the next few months. It has remained at the 50-week and 25-week moving averages, while the Average True Range (ATR) has fallen. 

Therefore, the stock will likely bounce back in the coming months, possibly retesting the resistance point at 43.15p. However, the risk is that it may remain under pressure in the next few months as it has in the past two years. 

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Barclays share price has moved sideways in the past few weeks. BARC peaked, formed a double-top pattern at 272.90 in December, and dropped to 263p today. It has rallied by over 315% from its lowest level in 2020, making it one of the best-performing banking groups in Europe.  So, is the Barclays stock price about to dip after forming a double-top and a rising wedge?

Barclays business is doing well

Barclays, one of the biggest banking groups in Europe, is doing well, thanks to high interest rates in the UK and other countries. It will also benefit from the potential merger and acquisition (M&A) wave as interest rates fall and deregulation takes shape.

The most recent financial results showed that Barclays’ statutory Return on Tangible Equity (RoTE) rose to 12.3% in the third quarter, up from 11% in Q3’23. 

Its group income rose by 5% to £6.5 billion. This revenue growth happened as Barclays UK revenue rose by 4%, while the investment bank revenue rose by 6%. The income growth in the consumer bank and private bank and wealth management dropped by 2% and 1%, respectively.

Most importantly, the company’s investment banking division, which has struggled in the past few months has started to do well. The investment bank division reported an income of £2.6 billion, a 6% higher than in the same period a year earlier.

Analysts expect the division to continue performing well in the coming months. Dealmaking usually performs well when interest rates are falling, and it also performs well when the American administration is open to more deals. 

The Joe Biden administration was mostly against consolidation as it stopped several deals. For example, it blocked the merger of Spirit and JetBlue and, most recently, the Albertsons and Kroger merger. 

Therefore, analysts anticipate that the Trump administration will embrace a light-touch regulatory approach and embrace more dealmaking. 

The next key catalyst for Barclays’ share price will be the upcoming bank earnings season, which starts on Wednesday. Top banks like JPMorgan, Wells Fargo, Bank of America, and Goldman Sachs will publish their financial results. 

These results are notable because they are similar to Barclays. Barclays offers similar services to Bank of America, including investment banking, wealth management, and retail banking. 

Further, Baclays has room to grow its dividends in the near term. For one, the company has a CET 1 ratio of 13.8%, which could drop to about 13% in the next few months. 

Barclays share price technicals points to a retreat

BARC stock chart | Source: TradingView

The daily chart shows that the BARC stock price has formed two chart patterns that could lead to a deeper dive in the next few months. 

First, the stock formed a double-top chart pattern at 273p, with a neckline at 255p. This is a popular pattern that often leads to a steep bearish breakdown.

Second, it has formed a rising wedge chart pattern, which is made up of two converging trendlines. The upper side of this pattern connects the highest swings since August last year, while the lower side links its lowest point in August. 

The stock has moved below the 25-day moving average. Therefore, more downside will be confirmed if it drops below the key support at 255p. A drop below that level will point to more downside, potentially to 238p, the highest swing in August last year.

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Lloyds share price has lost momentum in the past few months and formed a bearish pattern that may push it downwards soon. It dropped from last year’s high of 63.40p to 53.70p, as the focus now shifts to the upcoming bank earnings season in the United States.

Bank earnings season

Lloyds Bank and other British banking companies performed well in 2024. Between its lowest and highest points during the year, the company jumped by about 70%. NatWest was one of the best-performing companies in the FTSE 100 index, while companies like Barclays, HSBC, and Standard Chartered soared by double digits. 

Lloyds Bank stock has done well because of the resilient performance of the British economy and the elevated interest rates by the Bank of England (BoE). Like other central banks, it hiked interest rates to a multi-year high in a bid to fight the elevated inflation.

Banks benefit from high interest rates because they boost their net income margin (NIM). However, at times, as we saw with British banks, high rates have a limit since they often lead to capital flight from banks to money market funds that provide better returns. Also, higher rates usually lead to delinquencies among borrowers. 

The next important catalyst for the Lloyds share price will be the upcoming bank earnings season from the United States. The country’s biggest banks like JPMorgan, Bank of America, Goldman Sachs, and Wells Fargo will publish their financial results this week.

These results will set the tone for global banks like Lloyds and companies like Barclays and NatWest. 

However, these banks are significantly different from Lloyds. For one, Lloyds is a British bank focusing mostly on consumer and business lending. JPMorgan and Bank of America offer diverse services, including wealth management and investment banking. 

Lloyds’ business is doing well

The most recent financial results showed that its business is doing relatively well even as its key metrics dropped. 

Its net interest income dropped by 8% to £9.56 billion, down from £10.44 billion. Its other income rose by 9% to £4.16 billion. Altogether, its net income fell by 7% to £12.73 billion in the third quarter. Consequently, the company’s profit after tax fell by 12% to £3.77 billion. 

The management hopes that its business will continue doing well soon even as the Bank of England starts cutting rates. 

Economists anticipate that the central bank will continue cutting rates this year after it cut two times last year. With the economic growth slowing, the bank may deliver at least three big cuts this year, a move that may impact its net interest income. 

Lloyds Bank is also paying substantial dividends, giving it a yield of 5.6%, higher than that of the FTSE 100 index. 

It hopes to continue with its dividend strategy, by unlocking some of the cash in its balance sheet. Lloyds has a CET1 ratio of 14.3%, and it hopes that the figure will get to 13% by next year, pointing to more returns. 

Lloyds share price analysis

The daily chart shows that the LLOY share price has been in a tight range in the past few weeks. It has moved below the 50-day moving average. Most importantly, there are signs that the stock has formed a bearish flag chart pattern, a popular bearish sign in the market. This pattern is one of the riskiest signs in the market. 

Lloyds has moved to the 38.2% Fibonacci Retracement level, while the Relative Strength Index (RSI) and the MACD indicators have pointed downwards. Therefore, the bearish flag pattern will point to more downside, with the next point to watch being the 50% retracement point at 50.4p. 

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