The dollar index remained subdued and fell almost all through last week. However, on Friday, the index managed to rise back sharply, recovering most of the loss. The US Personal Consumption Expenditure (PCE), the US Federal Reserve’s inflation gauge data release on Friday triggered that reversal in the dollar index. The US PCE rose 2.71 per cent (year-on-year) in April. This was higher than the 2.5 per cent rise seen in the month of March. The rise in PCE strengthened the case for the US Federal Reserve to delay the rate cuts this year. That, in turn, took the dollar index higher on Friday.
Fed watch
Under this circumstance, the US Fed meeting this week on Wednesday is going to be very important to watch. The central bank will keep the rates unchanged. But what is its stance on inflation? Will the Fed hint anything on the timing of the rate cuts? If there is a clear answer for these two questions, then that could largely impact the markets. We will have to wait and watch.
Outlook mixed
The immediate outlook is mixed for the dollar index (105.94). Supports are at 105 and 104. Resistance is in the 107-107.50 region. Looking at the daily chart, if Friday’s bounce fails to sustain, then there are good chances for a fall at least to 105 this week.
To negate this fall, the dollar index has to get a strong follow-through rise from here breaking above 106.50. It is a wait and watch situation now.
Resistance holds
The US 10Yr Treasury yield (4.66 per cent) has been struggling to breach the 4.7-4.75 per cent resistance zone over the last couple of weeks. Immediate support is at 4.6 per cent. A break below it can take the yield down to 4.5-4.48 per cent or even 4 per cent in the coming days.
A decisive break above 4.75 per cent is needed to gain bullish momentum. Such a break can take the 10Yr Treasury yield up to 4.9 per cent and even 5 per cent in the coming weeks.
Supports available
The euro (EURUSD: 1.0693) rose breaking above the 1.0720 resistance last week, but did not sustain. The currency made a high of 1.0753 and then fell sharply from there on Friday.
Immediate support is at 1.0670. Below that, 1.06 is the next strong support. A bounce from either of these two supports can take the euro up to 1.08-1.0830 in the near term. However, a rise beyond 1.0830 is unlikely. As such, we can expect the euro to reverse lower again from the 1.0800-1.0830 region.
The euro will come under pressure only if it declines below 1.06. Such a break can drag it down to 1.05-1.0450.
More recovery
The Indian rupee (USDINR: 83.35) recovered to test the resistance at 83.30 last week. It made a high of 83.26 and has come down slightly from there. Immediate supports are at 83.40 and 83.45. As long as the rupee trades above these support, it can recover further towards 83.20 and 83.10 in a week or two.
Key support is in the 83.55-83.60 region, which can be tested if a break below 83.45 happens. The rupee will come under more pressure only if it declines below 83.60. In that case, a fresh fall to 83.75 and even 84 can be seen.