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The US dollar index snapped its three-week fall last week. The index made a strong recovery and rose over a per cent last week. It has closed the week at 102.41. The US 10Yr Treasury yield also witnessed a strong bounce back last week. The yield rose above the psychological 4 per cent mark. It touched a high if 4.1 per cent on Friday before closing the week at 4.04 per cent.
Markets turned volatile after the US jobs data release on Friday. The non-farm payroll in the US increased by 216,000 in December. The unemployment rate in the US remained stable at 3.7 per cent. For the coming week, the Consumer Price Index inflation data release on Thursday is important to watch. If the inflation cools down further, then that would strengthen the case for rate-cuts. In that case, the yields can fall and drag the dollar also lower along with it.
Crucial Resistance
The dollar index (102.41) and the 10Yr Treasury yield (4.04 per cent) have crucial resistance at 103 and 4.1 per cent respectively. These resistances were tested last week.
The dollar index has to breach 103 decisively to move further up towards 104 and 105. Failure to rise past 103 can drag the index below 102 again and target 101-100 on the downside.
The 10Yr Treasury yield, on the other hand, has an important support at 4 per cent. If it manages to sustain above this support and breaches 4.1 per cent, then that will be very bullish. Such a break can take it up 4.25-4.35 per cent in the coming weeks.
A fall below 4 per cent will bring the 10Yr yield under pressure for a fall to 3.9-3.8 per cent again. That will also keep the broader downtrend intact.
Euro outlook
The euro (EURUSD: 1.0943) has come down sharply over the last couple of weeks after making a high of 1.1140 in the last week of December. Support is at 1.0880. A break below it can drag the currency down to 1.08 and even 1.07 again.
Resistance is around 1.10. The euro has to sustain above 1.0880 and breach 1.10 to turn the outlook positive. In that case, a rise back to 1.11 and even 1.12 can be possible. Overall it is a wait-and-watch situation.
Range bound
The Indian rupee (USDINR: 83.16) has been stuck in a narrow range of 83.10-83.35 over the last couple of weeks. The short-term outlook continues to remain unclear. There is no major change in the overall outlook.
Rupee can continue to retain the 83.10-83.35 range; 83.00-83.50 can be a slightly wider range. A strong break on either side of 83.00-83.50 will determine the next leg of move. Until then the Indian Rupee can continue to oscillate within this range.
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