Currency Outlook: Dollar recovers, but upside to be limited bl-premium-article-image

Gurumurthy KBL Research Bureau Updated - March 16, 2024 at 07:57 PM.

The dollar index remained stable in the first half of the week. However, the greenback got a boost on Thursday after the US Producer Price Index (PPI) data release. The US PPI rose 1.55 per cent (year on year) in February, up from 0.95 per cent rise seen a month ago. This has increased the concerns in the market that the US Federal Reserve would not be in a hurry to cut the interest rates.

The US Fed meeting outcome is due this week on Wednesday. The economic projections will also be released. Market will be closely watching this event to hear from the central bank about its rate cut plans.

Resistances ahead

The dollar index (103.43) has risen back well from the low of 102.64 last week. However, an immediate resistance is there at 103.50. A break above it can take the index up to 104 and 104.50 in the coming days. But the price action thereafter will need a close watch.

The 104-104.50 is a strong resistance zone. So, a break above 104.50 might be difficult and it will need some strong trigger. A reversal anywhere from the 104-104.50 resistance zone can take the dollar index down to 103-102.50 again.

If the Fed meeting outcome provides some strong trigger for the dollar index to breach 104.50, then it could be bullish. In that case, a rise to 105-106 can be seen going forward.

Supports available

The euro (EURUSD: 1.0889) is struggling to get a sustained rise above 1.09. It made a high of 1.0964 and has come down sharply last week. However, there is a cluster of moving average supports in the 1.0850-1.0835 region.

 As long as the euro stays above this support zone, the bias will remain positive. A bounce from this support zone can take the euro up to 1.0950-1.10. A decisive break above 1.10 will then clear the way for the euro to touch 1.11-1.12 on the upside going forward.

The outlook will turn negative only if the euro declines below 1.0835. Such a break can drag it down to 1.0650-1.0630.

Bullish outlook

The US 10Yr Treasury yield (4.30 per cent) has risen sharply from the low of 4.05 per cent last week. The bias is bullish. Immediate resistance is at 4.35 per cent. A break above it can take the 10Yr yield up to 4.5 per cent in the coming weeks.

Failure to breach 4.35 per cent can drag it down towards 4 per cent again. In that case, 4-4.35 per cent can be the trading range for some time.

The 10Yr Treasury yield will have to fall below 4 per cent to become bearish. If that happens, then the yield can fall to 3.8 per cent and 3.7 per cent going forward.

Rupee watch
The Indian rupee can come under pressure for a fall to 83.50 again if it declines below 83.10
Crucial support

Rupee (USDINR: 82.89) strengthened breaking above 82.70 initially last week in line with our expectation. However, that did not sustain. The domestic currency made a high of 82.65 and then reversed lower sharply giving back all the gains.

A very crucial support is at 83. A break below it can take the rupee down to 83.10 – the next important support. A further break below 83.10, if seen, can increase the downside pressure. In that case, the rupee can weaken towards 83.50 again.

If the rupee manages to reverse higher from 83 or 83.10, it can move up to 82.70-82.65 again.

 

Published on March 16, 2024 14:27

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