The dollar index continued to rise for the third consecutive week. The index rose 0.8 per cent last week and closed well above the key level of 107 last week. That keeps the greenback on a strong footing.
Data watch
The US Personal Consumption Expenditure (PCE) data release this week on Wednesday will need a close watch. If the PCE – the Federal Reserve’s inflation gauge, shows an increase similar to the Consumer Price Index (CPI) inflation data earlier this month, it can support the Treasury yields to go higher. That in turn can take the dollar index also higher.
Dollar outlook
The break above 106 last week and the subsequent rise above 107 now is a positive for the dollar index (107.55). That keeps intact the overall bullish view. The broad region between 106.50 and 105.50 will now be a strong support. As long as the index stays above this support zone, there is potential to target 110 on the upside in the coming weeks.
Resistance holds
The US 10Yr Treasury yield (4.40 per cent) is struggling to breach the resistance at 4.5 per cent. As long as the yield stays below 4.5 per cent, there are good chances of seeing a fall to 4.2 per cent in the short term. As mentioned above, the US PCE data will be important to see if it is providing a trigger for the yield to break 4.5 per cent or not.
Fall continues
The euro (EURUSD: 1.0418) continues to get beaten down. It tumbled to a low of 1.0335 before recovering from there to close the week at 1.0418. If it manages to stay above 1.04, relief rally to 1.0650 is a possibility.
However, the big picture is bearish. Also considering the room for a rise to 110 in the dollar index, the upside in euro will be capped. That will keep alive the danger of seeing a steep fall towards 1.02 and even lower in the coming months.
Stable rupee
The Indian Rupee (USDINR: 84.45) fell to 84.50 before recovering slightly from there towards the end of the week. The rupee remain stable in a range of 84.30-84.50. If it manages to break 84.30, it can see a recovery towards 84.15.
But from a big picture, we expect the rupee to remain weak. The domestic currency can break 84.50 and fall to 84.90-85 in the coming weeks.
