It was a calm week for the currency markets. The dollar and the US Treasury yields remained stable and were range bound last week. They can continue to remain stable and retain this range in the first half of the week until the US Federal Reserve meeting outcome on Wednesday.
Fed watch
The US Fed is likely to keep the rates unchanged at 5.25-5.5 per cent in its meeting this week. However, market will be looking for some hint about the central bank’s rate cut plan, going forward. Most likely, this meeting will majorly be a non-event for the market unless the Fed gives any surprise on the rate cut front or about prolonging the rates at this higher level for more than what the market is anticipating. Some part of the market is expecting the Fed to begin its rate cut cycle from March this year.
Dollar outlook
Dollar index (103.43) has been stuck in between 102.75 and 103.85 for more than a week now. The bias is positive on the charts. As such, the chances are high for the index to breach 103.85 and rise above 104 in the coming days. A sustained rise above 104 will be bullish to see 105-105.30 on the upside in the short term.
On the other hand, a break below 102.75 can drag it down to 102 – an important support. The index will come under pressure for more fall only on a break below 102. Such a break can take it down to 101-100 once again.
More fall
The euro (EURUSD: 1.0853) has been coming down gradually over the last few weeks. The short-term downtrend is intact. Resistance is in the 1.0900-1.0920 region. The euro can fall to 1.0770 or 1.0730 this week.
The price action, thereafter, will need a close watch. A bounce either from 1.0770 itself or 1.0730 can take the euro up to 1.0900 again.
Mixed outlook
The US 10Yr Treasury yield (4.14 per cent) has been stuck in between 4.07 per cent and 4.20 per cent last week. The immediate outlook is mixed. Support is in the 4.07-4.05 per cent region. A break below 4.05 per cent will be bearish to fall below 4 per cent and see 3.9-3.8 per cent on the downside. Such a fall will also increase the chances of the US 10Yr yield tumbling to 3.6 per cent eventually over the medium term.
On the other hand, if the 10Yr yield manages to breach 3.2 per cent from here, it can get a breather. Such a break can take the yield up to 3.3-3.4 per cent.
Can go either way
The Indian rupee (USDINR: 83.12) was stuck in a narrow range on 83.06 and 83.17 in the truncated trading last week. The charts are not giving any clear picture for the near term.
Resistances are at 83 and 82.90. Supports are at 83.25-83.30. So, broadly 82.90-83.30 will be the trading range for some time. A breakout on either side of 82.90-83.30 will determine whether the rupee can go up to 82.70 or fall to 83.50.