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The dollar index has been moving up over the last six consecutive weeks. The index has risen well above the key level of 103.50 last week. The index rose to a high of 104.45 on Friday and had come down from there to close the week at 104.08.
No surprise
The US Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Symposium on Friday turned out to be a non-event largely. The Fed Chairman reiterated the central bank’s concern on the elevated inflation. From his speech, it is clear that the Fed will either increase the rates, if needed, or will continue to keep the rates at higher levels. No rate cut is on the cards, at least in the near future.
Fed, in its last meeting in July, raised the interest rates by 25 basis points. The Fed fund rate range is now 5.25-5.5 per cent. The next meeting is scheduled for September 19 and 20. Market is widely expecting the central bank to keep the rates unchanged in this meeting next month.
Dollar outlook
The rise and strong close above 103.50 is a positive for the dollar index (104.08). As long as the index stays above 103.50, the outlook is bullish to see a rise to 105 and even 106 is possible. A strong fall below 103 will now be needed to turn the outlook negative.
From a big picture perspective, 100-106 has been the broad range of trade for the dollar index from the beginning of this year. So, the price action around 106 will need a close watch going forward.
Resistance holds
The resistance at 4.35 per cent mentioned last week has held very well. The US 10Yr Treasury yield (4.23 per cent) made a high of 4.36 per cent and has come down from there. The 4.3-4.35 per cent region will continue to act as a good near-term resistance. A dip to 4.10 per cent is possible this week. Thereafter, a fresh rise back to 4.2-4.3 per cent can be seen. Overall, 4.1-4.35 per cent can be the trading range for some time.
Crucial juncture
The euro (EURUSD: 1.0796) continues to fall and is now poised above a crucial support level of 1.0765 – the 100-Week Moving Average. The currency has to bounce from the current levels immediately and rise past 1.09 to get a breather. Else, it can remain vulnerable to break the support at 1.0765. Such a break can drag the euro down to 1.07 and 1.06 in the next few weeks. As such the price action this week is going to be very crucial for the euro.
Rupee recovers
Contrary to our expectation to see a fall below 83.20, the Indian rupee (USDINR: 82.65) has recovered sharply last week. The support at 83.20 has held very well. Rupee made a high of 82.35 and has come down slightly from there to close the week at 82.65 against the dollar.
Support will now be in the 82.80-82.90 region. As long as the rupee stays above this support, a rise to 82.30-82.20 is possible in the near term. If the rupee manages to breach 82.20, it can rise to 82 in the short term.
Broadly, for now, 82.20-82.90 can be the trading range for this week.
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