The US dollar is under pressure. The dollar index has declined last week breaking below the key support level of 103. The index has closed the week at 102.71, down 1.11 per cent. The US Treasury yields have also come down last week.
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The US Federal Reserve Chairman, Jerome Powell, last week said that interest rates are at the peak. However, he insisted that the central bank will not be in a hurry to begin the rate cuts unless there is strong evidence of the inflation cooling down. The US Consumer Price Index (CPI) inflation data release is due this week on Tuesday. That will need a close watch.
The European Central Bank (ECB) left the rates unchanged last week. Its positive comments on cooling inflation have raised the hopes in the market for the ECB to begin its interest rate cuts in June.
More fall
The dollar index (102.71) is looking bearish. Strong resistances will now be at 103 and 103.50. The index can fall to 102 first. A break below 102 can drag it down to 101 in the coming weeks.
In case the dollar index manages to bounce back from around 102, a corrective rise to 103 is possible. Thereafter, a fresh reversal can drag it below 102 eventually targeting 101 on the downside.
Key support
The US 10Yr Treasury Yield (4.07 per cent) has declined below the intermediate support level of 4.15 per cent. A crucial support is at 4 per cent. A break below it will increase the downside pressure. Such a break can drag it down to 3.8-3.7 per cent in the coming weeks.
If the yield manages to sustain above 4 per cent, a bounce back move to 4.1-4.15 per cent can be seen this week. The outcome of the US CPI data on Tuesday might set the trend.
Bullish outlook
The euro (EURUSD: 1.0939) is moving towards 1.10 in line with our expectation. A high of 1.0981 was touched last week. The outlook is bullish. Immediate support is at 1.09. Below that a cluster of supports is available in the 1.0850-1.0800 region. Resistance is at 1.10, which can be broken in the coming days. Such a break can take the euro up to 1.1150-1.12 in the short term.
Also read: Currency Outlook: Dollar: Upmove loses steam
The euro will come under pressure for a fall only if it declines below 1.08. But that looks less likely at the moment.
Room to strengthen
The Indian Rupee (USDINR: 82.78) strengthened last week inline with our expectation. We had expected the rupee to test 82.70. The domestic currency made a high of 82.72 and then has come-off slightly from there. It has closed the week at 82.78.
Support is in the 82.85-82.90 region. Resistance is around 82.70, which is holding well for now. So broadly, 82.70-82.90 can be the trading range for some time. Within this, the bias remains positive. The chances are high for the rupee to break 82.70 and move further up towards 82.60 in the coming days.