Dollar index dipped initially last week. However, the index managed to recover all the loss in the second half of the week and has closed on a positive note. The US 10Yr Treasury yield, on the other hand, remained stable and was range bound all through the week. Broadly the near-term outlook remains positive for the dollar index.

Some important data releases are due this week which will need a close watch. The US GDP data release is on Thursday. That will be followed by the Personal Consumption Expenditure (PCE) – the Fed’s inflation gauge, data on Friday. This will be important to watch. Soft PCE number could halt the rise in the dollar as that would strengthen the case for rate cuts.

Room to rise

The near-term outlook is positive for the dollar index (105.80). Immediate support is at 105.50. Below that 105 is the next strong support, which has held very well last week. The dollar index can rise to 106.50-107 in the short term.

The price action thereafter will need a very close watch. The index has to breach 107 to continue the upmove towards 108 and higher. Failure to breach 107 can trigger a fall to 105.50 and 105 in the coming weeks.

Range bound

The US 10Yr Treasury yield (4.25 per cent) was stuck between 4.2 per cent and 4.3 per cent all through last week. The trend is still down. This range-bound move seen last week could just be a pause within the downtrend. Resistance is in the 4.3-4.35 per cent.

As long as the yield stays below 4.35 per cent, the bias will remain negative to break 4.2 per cent. Such a break can drag the 10Yr yield down to 4.1 per cent.

The level of 4.1 per cent is a strong support. The chances are high for the 10Yr yield to reverse higher from around 4.1 per cent. That leg of rise can take it back up to 4.3 per cent and 4.45 per cent in the coming weeks.

Support ahead

The euro (EURUSD: 1.0693) has turned down from the high of 1.0761 last week. This keeps the broader downtrend intact. There is room to fall within this downtrend. A test of 1.0650-1.0630 looks likely this week. A break below 1.0630 can take the euro further lower to 1.0580. The levels of 1.0630 and 1.0580 are important supports. The euro has to rise back from either of these two supports to avoid a steeper fall to 1.05 and lower.

Rupee watch
Rupee has to break above 83.40 to recover and avoid the fall to 83.80-84
Crucial Juncture

The Indian rupee (USDINR:83.54) fell breaking below the key support level of 83.60 last week. The domestic currency made a new low of 83.67, but then had managed to recover slightly from there.

Important resistances are at 83.50 and 83.40. The rupee has to break above 83.40 to ease the downside pressure. Only then it can recover towards 83.20.

As long as the rupee stays below 83.40, the bias will remain negative to break 83.60 again. Such a break can take rupee down to 83.80 and 84 in the coming weeks.

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