The dollar index oscillated up and down within a narrow range all through last week. The index traded in a range of 100.16-101.23. The immediate outlook is unclear. However, the US Personal Consumption Expenditure (PCE) data release on Friday can keep the bias negative. The US 10Yr Treasury yield has declined on Friday following this data release.
The US PCE came in at 2.37 per cent (year-on-year) for September, down from 2.65 per cent seen a month ago. PCE is the US Federal Reserve’s inflation gauge. So as the PCE continues to come down, it will support the Fed’s plan to cut rates going forward.
Data watch
Two important data release from the US will need a close watch this week. The first will be the Manufacturing Purchasing Managers’ Index (PMI) data release on Tuesday. It is currently at 47.2 (for August). A lower reading for September will bring in the concerns of a slowdown which will be negative for the dollar.
Jobs data will be out on Friday. If the unemployment rate (4.2 per cent as of August) increases in September, that would be negative for the greenback.
Dollar outlook
The dollar index (100.38) has a crucial support at 100. As long as the index manages to sustain above this psychological level of 100, the chances are high for it to continue its sideways consolidation for some more time. The dollar index can then trade in a range of 100-101 (narrow) or 100-102 (wide). A breakout on either side of 100-102 will determine the next move.
A fall below 100 will be bearish. It can drag the dollar index down to 98. On the other hand, a strong break above 102 will ease the downside pressure and take the index up to 104.
Yields bearish
The US 10Yr Treasury yield (3.75 per cent) has been struggling to get a sustained rise above 3.8 per cent. Resistance is at 3.83 per cent. As long as the yield stays below it, a fall to 3.6 per cent cannot be ruled out. A break below the immediate support at 3.72 per cent can trigger this fall.
Range intact
The euro (EURUSD: 1.1162) retains its 1.10-1.12 sideways. The currency broke 1.12 last week but fell back into the range after touching 1.1214. Good supports are at 1.1050 and 1.10. The bias remains positive to see a bullish breakout above 1.12. Such a break can take the euro up to 1.13-1.14.
But, if the currency declines below 1.10, it will be bearish for a fall to 1.09-1.08.
Resistance holds
The Indian rupee (USDINR: 83.70) fell back last week failing to rise past the resistance at 83.40. The domestic currency touched a high of 83.44 and then reversed lower giving back all the gains.
Support is at 83.80 which can be tested this week. If the rupee manages to sustain above this support, it can recover again and rise back to 83.50-83.40. In that case, a range of 83.40-83.80 can be seen for some time.
But if the rupee declines below 83.80, it will increase the downside pressure. That in turn can drag it down to 84 again.
