The dollar index remained in a narrow range all-through last week. Indeed, the index has been stable, and range bound over the last three weeks. This clearly indicates that the market is waiting to see the outcome of the US Federal Reserve meeting on Wednesday this week.
Rate cut
The currency market has widely factored in a 25-basis points (bps) rate cut in this Fed meeting. There is also hope in some segments of the market to see even a 50-bps rate cut on Wednesday. So, it will be interesting to see what the Fed has on its plate for the market.
More than the rate cut, the Fed’s economic projections and the dot plot, which will give a signal on the central bank’s future rate cut path, are very important to watch. That could set the trend for the dollar movement, going forward.
Dollar outlook
The picture remains unclear for the dollar index (101.11). There is a range of 100.5 to 102. The index has to see a breakout on either side of 100.5-102 to get clarity on the next move.
A break below 100.5 can take the index down to 100-99.50. On the other hand, a break above 102 and a subsequent rise past 102.25 will be very bullish. That can clear the way for the dollar index to revisit 104-105 levels in the coming months.
Bearish yields
The US 10Yr Treasury yield (3.65 per cent) has come down sharply over the last two weeks. The outlook is negative. Strong resistance is in the 3.8-3.85 per cent region. The 10Yr yield can fall to 3.5-3.45 per cent in the short term. That in turn leaves the chances less for the dollar index to break above 102 immediately.
Support ahead
The euro (EURUSD:1.1075) is on a corrective fall over the last few weeks. There is room for the currency to fall further towards 1.10 or even 1.0950. However, this 1.10-1.0950 is a strong support zone which can halt this correction. A fresh rise from this support zone can take the euro back up to 1.12 and even higher in the coming weeks.
Range intact
The Indian Rupee (USDINR: 83.89) is stuck inside the 83.75-84 range for more than a month now. Within this range, the rupee is moving up towards the upper end of the range. This sideways move can continue to remain intact for some more time. But eventually, we expect the rupee to break below 84 and weaken towards 84.20-84.30 initially and even lower going forward.