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The dollar index has managed to bounce back last week, thereby snapping its three-week fall. This is contrary to our expectation to see the downtrend extending further. The US 10Yr Treasury yield has also risen well especially on Friday after the US jobs data release.
The nonfarm payroll in the US increased by 199,000 in November. Market expectation was to see an increase of 190,000. The unemployment rate in the US fell to 3.7 per cent in November from 3.9 per cent a month ago.
Fed meeting
All eyes will now be on the US Federal Reserve meeting outcome on Wednesday. Market widely expects the Fed to keep the rates unchanged at 5-5.25 per cent. As we had mentioned earlier in this column, there is room for another 25-basis points rate hike according to the central bank’s projection made in September.
The economic projections that will be released in this meeting will play an important role in setting the tone for the market, going forward. As such, this Fed meeting will be a very important event to watch this week.
Dollar outlook
The dollar index (104.01) has an immediate resistance at 104.30. A strong break above it can see a bullish rise to 105-106 in the short term.
On the other hand, failure to breach 104.30 and a fall below 103 can drag it down to 102-101.50. We will have to wait and watch.
Support holds
The support at 4.1 per cent on the US 10Yr Treasury yield (4.22 per cent) has held very well last week. The yield touched 4.1 per cent and has risen back very well. Immediate resistance is at 4.27 per cent. A break above it can take the 10Yr yield up to 4.4 per cent this week. The upside can extend even up to 4.5 per cent if the momentum is strong.
The yield will come under pressure for more fall only if it breaks below 4.1 per cent. Such a break can drag the 10Yr Treasury yield down to 3.95-3.9 per cent.
Weak euro
The euro (EURUSD:1.0763) fell for the second consecutive week. The immediate outlook is weak. Resistance is in the 1.0800-1.0820 region. The euro can test 1.07 initially. A break below 1.07 can drag it down to 1.0630-1.06 this week. The price action, thereafter, will need a close watch to see if the currency is bouncing back or not.
To avoid the fall to 1.06, the euro will have to sustain above 1.07 and breach 1.0820. Only in that case, a rise to 1.09-1.10 will come back into the picture.
Range intact
The Indian rupee (USDINR: 83.38) continued to be stuck in a narrow range. The broader 83.00-83.50 remains intact. Within this, 83.25-83.50 can be the narrow range of trade for this week.
We reiterate that on the long-term chart, the picture is weak for the Indian rupee. As such, we can expect the domestic currency to break below 83.50 and fall to 84 and 84.50 going forward.
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