USD/INR extends losses as Iran-Israel ceasefire weighs on Oil, US Dollar

• The Indian Rupee gains for a second day, supported by softer crude Oil prices and a weaker US Dollar.
• US President Donald Trump announces a "complete and total" ceasefire between Iran and Israel, calming global energy markets.
• S&P Global Ratings raises India's FY2025 growth forecast to 6.5% and sees moderate inflation ahead.

The USD/INR pair falls on Tuesday for a third consecutive day, as a pullback in global Crude Oil prices and a weaker Greenback improved the outlook for India's trade balance. Sentiment improved after US President Donald Trump announced on social media that Iran and Israel have agreed to a ceasefire, easing the tensions that had kept energy markets on edge in the past days.

At the time of writing, USD/INR trades softer near 86.00 during the European session, down around 0.50% on the day as the Rupee extends its modest winning streak.

Meanwhile, the US Dollar Index (DXY) remains under pressure, drifting lower toward 97.95 -- close to its lowest level in nearly three years -- as easing geopolitical tensions cap demand for the Greenback.

Global markets welcomed the ceasefire news, taking some pressure off safe-haven assets and energy prices. US President Donald Trump termed it a "complete and total" ceasefire via Truth Social, stating that Iran would halt hostilities first, with Israel to join 12 hours later -- a framework he said was brokered through Qatar with input from senior US officials, including VP Vance and Secretary Rubio.

Israeli Prime Minister Netanyahu backed the plan, stating his government had "achieved military goals" and would honor the US-brokered pause.

Iran's Foreign Minister Abbas Araghchi at first rejected talk of a formal agreement but later hinted at de-escalation, praising Iran's armed forces for "fighting until the very last minute" and state media reporting that the truce had begun.

Despite Israel reaffirming its commitment to the truce, some officials quickly accused Iran of breaching the terms -- accusations Tehran has firmly denied. While this de-escalation has tempered geopolitical risk premiums, markets remain watchful for any renewed flare-up that could quickly revive volatility in Oil and currency markets.

Market Movers: Rupee rebounds as equities firm

• The Indian Rupee, which had been under pressure since the Iran-Israel conflict erupted -- slipping to a three-month low -- is now staging a solid recovery. Several global and domestic factors, including easing geopolitical tensions, subdued Oil prices, and a softer US Dollar, have driven the sharp rebound.
• India's equity benchmarks surged as investor optimism rose, driven by improved risk sentiment and lower Oil prices. The BSE Sensex jumped nearly 1% intraday, briefly adding over 1,100 points before trimming gains to close about 158 points higher at 82,744. Similarly, the NSE Nifty climbed above the 25,200 mark during the session and settled modestly higher above 25,000. Hopes for a lasting ceasefire in the Middle East and a softer Greenback supported buying across most sectors, although energy shares lagged due to weaker crude Oil prices.
• Following Monday's sharp sell-off, Oil prices extended losses early on Tuesday, with Brent briefly slipping below the $70 mark for the first time in weeks as optimism over an Iran-Israel ceasefire trimmed the geopolitical risk premium. However, prices later pared some of the intraday decline -- at the time of writing, Brent is trading near $68.66 per barrel, while WTI holds around $66.50. The softer energy market continues to ease cost pressures for Oil-importing countries like India, offering support to the Rupee and broader risk sentiment, though traders remain cautious about the fragile nature of the truce.
• S&P Global Ratings raised India's GDP growth projection for the current fiscal year to 6.5%, up from its previous estimate of 6.3%, citing supportive factors such as falling crude Oil prices, the prospect of monetary easing, and expectations of a normal monsoon season. The agency also noted that while geopolitical tensions persist, they are unlikely to create "significant pressure" on the Rupee or stoke inflation risks, offering an encouraging backdrop for the currency and the broader economy.
• S&P economist Vishrut Rana told PTI that energy costs remain lower than last year -- Brent crude averaged around $85 a barrel a year ago, compared to current levels. "This will help contain both current account outflows and domestic energy price pressures -- while energy prices may rise moderately, the path of food prices will have a higher impact on inflation. Overall, we do not expect significant pressure on the Indian rupee or inflation," Rana added.
• S&P's upgraded FY2026 growth estimate for India aligns with the Reserve Bank of India's projection, pegging GDP expansion at 6.5%. Alongside stronger growth, S&P forecasts that India's inflation will moderate to an average of 4% in 2025, easing from 4.6% in 2024.
• The US Dollar Index (DXY) is trading on a softer footing as markets brace for fresh policy clues from the Federal Reserve (Fed). Recent comments from Fed officials, including Vice Chair Michelle Bowman and Governor Christopher Waller, have strengthened expectations that rate cuts could come as soon as July. All eyes are now on Fed Chair Jerome Powell's testimony before Congress later on Tuesday, which traders hope will provide clearer guidance on the policy path ahead.

Technical analysis: USD/INR softens after triangle breakout, EMA support in focus

From a technical perspective, USD/INR broke out of a months-long triangle pattern earlier in June, confirming an upside bias.

The pair surged past the descending trendline resistance but quickly ran into selling pressure near 86.80-87.00. This zone has capped further gains, resulting in a modest pullback over the past three days.

The pair is now hovering just above its 21-day Exponential Moving Average (EMA), which serves as immediate support at around 85.90. Holding this level could help bulls regroup for another attempt at the recent high near 86.50, while a break below might expose the next support around 85.50 and the triangle's upper trendline retest.

Momentum signals are showing early signs of fatigue, indicating potentially choppy price action in the near term.

The daily Relative Strength Index (RSI), which recently peaked above 67, has slipped back toward the neutral 50 zone, suggesting that the bullish momentum is losing steam but not yet fully reversing.

If buyers defend the EMA support, the pair could maintain a mild upward bias. However, a sustained drop below the 85.90-85.70 area might encourage further profit-taking, dragging USD/INR back inside the prior consolidation range.