The upmove in the dollar index that had begun in early May seems to have paused. The index has been oscillating around 104 over the last couple of weeks. The price action on the charts indicate that the upmove could have lost momentum. A strong sustained break above 104 is necessarily needed for the dollar index to keep the uptrend intact and move up further. The outcome of the US Federal Reserve meeting on Wednesday could be key in determining whether the index can rise above 104 or not.
Watch the Fed
All eyes are on the Fed meeting this week. Market expects the central bank to keep the interest rates unchanged at 5-5.25 per cent. Volatility in the market can shoot up if the Fed surprises with another rate hike even by a 25 basis points. In that case, the dollar index can surge above 104.
Also, important to see will be the economic projections and the dot plot to know the future rate hike path. Overall, the Fed meeting could set the tone for the market, going forward.
Mixed outlook
As expected, the dollar index (103.55) has come down last week. The price action on the weekly chart indicates a range-bound move. But the daily chart is relatively much weaker than the weekly chart. This leaves the chances high for the index to test 103, may be well ahead of the Fed meeting. The index has to sustain above 103, to keep alive the chances to break 104 and rise to 106.
A decisive fall below 103 will negate the chances of the rise to 106. It will then drag the index down to 102-101 again. Overall, it is a wait-and-watch situation this week.
Resistance ahead
The euro (1.0749) is getting good support above 1.06 over the last couple of weeks. However, there is still no major sign of a trend reversal on the charts. Key resistances are at 1.08 and 1.09. A strong rise past 1.09 is needed to become bullish again. Only in that case, the rise to revisit 1.10-1.11 and higher levels will come back into the picture.
As long as the euro stays below 1.08-1.09, the broader view is bearish, and will see 1.05 on the downside.
Trigger to rise
The US 10Yr Treasury (3.69 per cent) was volatile last week. The immediate outlook is mixed. 3.65-3.90 per cent can be the expected range of trade. A breakout on either side of this range will determine the next move.
A break above 3.9 per cent can take the yield up to 4.1-4.2 per cent. On the other hand, a break below 3.65 per cent can drag the yield down to 3.5 per cent. The Fed meeting outcome of Wednesday can determine the path of move for the yield, going forward.
Strengthen more
The Indian Rupee (USDINR:82.46) is managing to stay afloat against the dollar. The domestic currency fell to a low of 82.68 initially, but then managed to recover all the loss. It has closed the week at 82.46 against the dollar.
The price action on the daily chart indicates a turn-around. It leaves the bias positive for the rupee to move up towards 82.30-82.25 or even 82.15 this week initially. This move can happen ahead of the Fed meeting on Wednesday. Whether the rupee can break above 82.15 or not will be determined by the outcome of the Fed meeting.
A break above 82.15 can see the rupee strengthening towards 81.85 and 81.65. On the other hand, a downward reversal from 82.15 can take the rupee down to 82.80-82.90 again. It will also keep the danger of the rupee testing 83 and 83.20 levels alive, going forward.