The upmove in the US dollar index that was in place since the beginning of this year seems to have lost steam. It faced strong resistance near 105 last month and has been coming down since then. The index fell to a low of 103.43 before closing at 103.94, down 0.33 per cent for the week. The US 10Yr Treasury yield, on the other hand, remained stable and range bound last week.
Data watch
The coming week has a few important data releases that will need a close watch. The US GDP numbers will be released on Wednesday. This will be followed by the release of Personal Consumption Expenditure (PCE), the US Federal Reserve’s inflation gauge, on Thursday. The outcome of this data can influence the yields movement. Finally, the jobs number and the unemployment rate data will be out on Friday.
Dollar: Bearish
The near-term outlook is negative for the dollar index (103.94). Strong resistances are at 104.50 and then around 105. The index can fall to 103 and 102.50 in the coming weeks. A subsequent break below 102.50 will see the dollar index falling towards 101 in a month or two.
A strong break above 105 is needed to turn the outlook positive. Only in that case, the dollar index can rise to 106-107. But such a rise looks less probable.
Yields: Stable
The US 10Yr Treasury yield (4.25 per cent) remained stable between 4.24 per cent and 4.35 per cent last week. Support is around 4.2 per cent. As long as the yield sustains above this support, the short-term outlook is positive. The US 10Yr Treasury yield can rise to 4.5-4.6 per cent in the coming weeks. Thereafter, a fresh fall is possible.
In case the yield declines below 4.2 per cent from here, the chances of the rise to 4.5-4.6 per cent mentioned above will get reduced. In that case, the yield can fall to 4 per cent and lower again.
Euro: Rise more
The euro (EURUSD: 1.0821) rose to a high of 1.0888 and then has come down from there. Strong support is there in the 1.08-1.0780 region. The near-term outlook is bullish to see a rise to 1.09 – an immediate resistance. A break above 1.09 can boost the momentum. Such a break will take the euro up to 1.10-1.11 in the short term.
The outlook will turn negative only if the euro declines below 1.0780. In that case, the currency can fall to 1.07 and lower.
Crucial resistance
The Indian Rupee (USDINR: 82.95) is showing some signs of a gradual recovery. The domestic currency touched a high of 82.84 before closing the week at 82.95. On the offshore segment, the rupee has closed higher at 82.86.
There is room for the rupee to strengthen in the short term. Immediate resistance is at 82.75. A break above it can take the rupee up to 82.70-82.65 this week. The chances of the rupee strengthening beyond 82.65 will have to be seen.
Strong support is around 83. The domestic currency will come under pressure only on a fall below 83. In that case, it can fall to 83.10-83.20 again.