After beginning the week on a negative note, the dollar index got a boost after the US Presidential elections last week. The dollar index surged from a low of 103.37 to a high of 105.44 as the election results started to come out and Donald Trump’s victory was confirmed on Wednesday. However, the rally paused after that, and the index fell back on the back of the US Federal Reserve meeting outcome on Thursday. The US Fed reduced the interest rates by 25-basis points in line with market expectation. The Fed’s Fund rate range now stands at 4.5-4.75 per cent. That leaves the door open for one more 25-bps rate cut in December.
Crucial hurdle
The dollar index (105) is heading up towards 106 in line with our expectation. This level of 106 is a strong resistance. As such more caution is needed as the index heads up towards it. We see high chance of a reversal from around 106. Such a reversal can drag the dollar index down to 104 and even 103 in the coming weeks. So, the price action around 106 will need a close watch this week.
Resistance holds
The US 10Yr Treasury yield (4.30 per cent) has come down sharply from a high of 4.48 per cent last week. The resistance at 4.45 per cent has held well as expected. Support is at 4.2 per cent. A break below it can take the 10Yr yield down to 4 per cent in the coming weeks.
In case the yield manages to stay above 4.2 per cent, it can rise back 4.4-4.5 per cent. In that case a consolidation between 4.2 per cent and 4.5 per cent is a possibility for some time.
More fall
The euro (EURUSD: 1.0718) declined well below 1.08 last week. The region around 1.08 will now act as a strong resistance and cap the upside. The outlook is bearish. The euro can fall to 1.06 from here.
However, the level of 1.06 is a strong support. A strong reversal from around 1.06 can take the euro up to 1.08 and higher again. As such the price action around 1.06 will need a close watch.
Bearish breakout
The Indian Rupee (USDINR: 84.37) declined sharply breaking below 84.10 as expected. The domestic currency fell to a new low of 84.38 last week. This keeps our broader bearish view intact.
Rupee can test 84.50 on the downside now. From there a short-lived recovery to 84.20-84.15 is possible this week. As long as the rupee stays above 84.50, there are good chances to see a sideways consolidation between 84.10 and 84.50 for some time. Eventually, we can expect the rupee to break 84.50 and fall further to 84.90-85 over the medium term.
