The surge in the US Treasury yield continues. The US 10Yr Treasury yield touched the 5 per cent mark last week. The rise in the yields had gained momentum since the last US Federal Reserve meeting held on September 20. The Fed had indicated that the interest rates will continue to stay higher and for long period in that meeting. In his recent speech last week, the Federal Reserve Chairman Jerome Powell reiterated that the inflation in the US is still high. According to the forecast released by the central bank last month, the Fed has room to increase the rates by another 25 basis points for the rest of the year. The next meeting is on November 1. Market expects the Fed to keep the rates unchanged in that meeting.
More rise
The US 10Yr Treasury Yield (4.91 per cent) has an immediate support at 4.88 per cent. If the yield manages to sustain above this support, the chances are then high for it to breach 5 per cent. Such a break can take the 10Yr yield up to 5.1 per cent and 5.2 per cent. Thereafter, a corrective fall to 4.9 per cent is a possibility.
On the other hand, if the yield declines below 4.88 per cent from here, it can fall to 4.6 per cent. In that case, the 10Yr Treasury yield can remain in a range of 4.5-5 per cent for some time.
Support holds
The dollar index (106.16) was stuck in a narrow range between 105.97 and 106.67 last week. Immediate and important support is at 106. As long as the index sustains above 106, the outlook is bullish. A rise to 107-108 can be seen in the short term.
On the other hand, a break below 106 if seen can take the index down to 105.50 and 105. The danger of a trend reversal will come into play only if the dollar index declines below 105.
Resistance ahead
The euro (EURUSD: 1.0594) has risen back well last week. The currency has managed to sustain well above 1.05 contrary to our expectation to see a break below it and fall to 1.04. However, the outlook has not turned bullish still. Important resistances are at 1.0650 and 1.07. These levels can be tested in the near term. But a strong rise past 1.07 is needed to become bullish for a rise to 1.08 and higher levels.
As long as the euro stays below 1.07, the trend will continue to remain down. As such the currency will continue to remain vulnerable to break 1.05 and fall to 1.04 in the short term.
The European Central Bank’s (ECB) monetary policy meeting is due on Thursday this week. The ECB in its last meeting in September increased the rates by 25 basis points. Will the ECB pause the rate hike this time? We will have to wait and watch.
Room to recover
Rupee was stuck between 83.20 and 83.30 for most part of the week. On Friday, the domestic currency broke 83.20 and rose to a high of 83.04 before closing the week at 83.12.
The near-term outlook is positive. The 83.20-83.30 region can now act as a good support zone. Rupee can move up to 82.90 in the near term. A strong break above 82.90 will be bullish. It can then take the rupee up to 82.70 and 82.50 in the short term.
On the other hand, failure to break 82.90 can keep the rupee in a range of 82.90-83.30.