The dollar index continues to rise and has closed higher for the fourth consecutive week. The fall below 102 after the US inflation data release on Thursday did not sustain. The index made a low of 101.78 and has risen back recovering all the loss.
The US Consumer Price Index (CPI) data gave a mixed picture. The Headline CPI showed an uptick (year-on-year basis), while the Core CPI continued to fall. The Headline CPI for July inched up to 3.3 per cent (Y-o-Y) in July from 3.1 per cent a month ago. The Core CPI, on the other hand, came in at 4.7 per cent (Y-o-Y) for July, down from 4.86 per cent in the previous month. The US yields continued to rise as the weak demand for the Treasury auction on the same day overshadowed the impact of the inflation. In turn, the dollar index also moved up.
Resistance ahead
The near-term view is positive for the dollar index (102.84). However, there is not much room left on the upside. The region between 103.50 and 104 is a strong resistance. The chances are high for the index to reverse lower anywhere from the 103.50-104 region. That move can take it down to 102-101.50 in the near term. It will also keep alive the danger of seeing an extended fall up to 100-99.
In case the index breaks above 104, the upside can extend up to 105 and even 106. But that looks less probable.
Yields bullish
The US 10Yr Treasury yield (4.15 per cent) dipped below 4 per cent initially, but did not sustain. The yield made a low of 3.94 per cent and then rose back above 4 per cent again and closed the week on a strong note at 4.15 per cent.
The outlook is bullish. The 10Yr yield can rise to 4.3-4.35 per cent from here. A break above 4.3 per cent will pave way for a test of 4.5 per cent on the upside.
Support is in the 3.95-3.9 per cent region. The short-term outlook will turn negative only on a break below this support, in which case a fall to 3.7 per cent and lower can be seen.
Crucial support
The resistance at 1.1070 on the euro (EURUSD: 1.0949) mentioned last week has held very well. The euro made a high of 1.1065 and has come down from there. A very crucial support is in the 1.0920-1.0900 region. A break below 1.09 can drag the euro down to 1.08 and 1.0770. The currency has to sustain above 1.09 to avoid this fall and rise back to 1.1050 levels.
Rupee vulnerable
The Indian Rupee (USDINR: 82.84) is managing to sustain above 82.90. For now, the 81.50-83 range remains intact. However, the price action on the charts leaves the domestic currency vulnerable to break 83, going forward. Such a break will see the rupee weakening towards 83.20-83.30 this week.
The price action thereafter will need a close watch. A strong weekly close below 83.20 will be very bearish. That will keep the danger of the rupee tumbling towards 84.50 over the medium term.
To avoid a fall below 83, the rupee has to break and sustain above 82.70. If that happens, then the domestic currency can recover towards 82.50 and 82.30.