Dollar index is struggling to get a strong follow-through rise. The resistance at 106 mentioned last week has held very well. The index made a high of 105.88 and has come off sharply to close the week on a flat note. The US Treasury yields fell sharply last week as the sentiment in the market turned highly risk-averse after the Silicon Valley Bank collapse. This unexpected development in the US has shifted the market expectations on the rate hikes.
The US Federal Reserve Chairman, Jerome Powell last week said that if the data warrants, then faster pace of rate hikes will still be possible in the future. This had raised the hopes that there could be a 50-basis point (bps) rate hike from the Fed this month. But following the Silicon Valley Bank collapse, the market now expects that the Fed could slow down and go with just a 25-bps hike.
Under this circumstance, the key Consumer Price Index (CPI) data release is due on Tuesday. The outcome of this data will need a close watch.
Still ranged
As expected, the dollar index (104.58) is oscillating within the 104-106 range. This continues to keep the immediate outlook mixed for the greenback.
As mentioned last week, we have to wait for a breakout on either side of 104-106 to get a cue on the next move. A break below 104 will be bearish. Such a break can drag the dollar index down to 102 and even lower. From a bigger-picture perspective, that will also indicate the resumption of the overall downtrend that has been in place since 2022.
On the other hand, if the index manages to breach 106, a rise to 108 is possible. However, considering the current scenario, a strong positive trigger will be needed to break above 106.
So, either the index will stay inside the 104-106 itself for some more time or will fall below 104. The weakness in the yields leaves the chances high for the dollar index to see more fall from here.
More fall
The US 10Yr (3.7 per cent) Treasury yield tumbled on Friday after trading in a narrow range around 4 per cent until Thursday. It has closed the week at 3.7 per cent.
The outlook is bearish for this week. Strong resistance is around 3.9 per cent. The 10Yr yield can fall to 3.55-3.5 per cent or even 3.45 per cent from here. Thereafter the price action will need a close watch for a reversal.
Support holds
The euro (1.0643) continued to oscillate in the 1.05-1.07 range for the third consecutive week. Although we will have to wait for a breakout of this range to get clarity, the bias is inclined to see a bullish breakout. So, a break above 1.07 can take the euro up to 1.09 and 1.10 again.
However, if the euro breaks below 1.05, it can fall to 1.04-1.0350.
Can strengthen
The Indian Rupee (USDINR: 82.05) fell sharply to a low of 82.29 last week. However, it has managed to recover from there and close the week at 82.05 in the onshore market and 81.96 in the offshore segment.
The price action on the charts still keeps the chances high for the rupee to strengthen from here. The level of 82.30 will be a strong support. As long as the rupee stays above this support, the outlook is positive.
As such, we retain our view of the rupee strengthening towards 81-80.75 in the coming weeks. As mentioned last week, the 81.00-80.75 region is an important resistance which might not be easy to break.