It was a volatile week for the currency market. The dollar index and the Treasury yields fell in the first half and then managed to recover later after the inflation data release. The dollar index has risen back well from its low of 105.54 to close the week at 106.65.

The US Consumer Price Index (CPI) inflation numbers came in higher than the market expectation. The US Headline CPI rose 3.7 per cent (year-on-year) in September as against the market expectation for an increase of 3.6 per cent. The Core CPI came inline with the market expectation at 4.1 per cent.

Dollar outlook

The bounce from the low of 105.54 on the dollar index (106.65) is a positive. That reduces the chances of the corrective fall to 105-104 that we had mentioned last week. Support will now be at 106. While above 106, the dollar index can rise to 107-107.50 this week. That will also keep the broader bullish view intact to see 108 on the upside.

The dollar index will come under pressure only if it breaks below 106. That can take it down to 105.50 and 105. It will also bring back the danger of the fall to 104.

Yield is mixed

The US 10Yr Treasury yield (4.61 per cent) is getting support around 4.5 per cent. The immediate outlook is mixed; 4.5-4.75 per cent can be the trading range in the near term. A breakout on either side of this range will determine the next move.

A break above 4.75 per cent take the 10Yr yield up to 4.9 per cent first. A further break above 4.9 per cent will then pave the way for a test of 5 per cent and higher levels.

On the other hand, a break below 4.5 per cent will be bearish to see 4.35 per cent on the downside.

Downtrend resumes

The euro (EURUSD: 1.0510) has come down sharply from the high of 1.0640. Thus the corrective bounce has ended and the broader downtrend has resumed in line with our expectation. The euro can now fall to 1.04 – a very important support for the currency. A break below it can drag it down to 1.03 and even lower. The level of 1.06 can act as a good resistance now.

Rupee watch
Near-term outlook is unclear. A breakout on either side of the 83.10-83.30 range will determine the next move
Stuck in range

The Indian rupee (USDINR: 83.26) has not gone anywhere in the last couple of weeks. The domestic currency is stuck in a very narrow range; 83.12-83.27 was the range last week.

Broadly, rupee can continue to oscillate in the 83.10-83.30 range. A breakout on either side of this range will determine the next move. A break above 83.10 can take the rupee up to 83 and 82.90. On the other hand, a break below 83.30 will be bearish. It can drag the rupee down to 83.50 and even lower.