The US dollar and the Treasury yields have declined sharply last week. The trigger for the fall came from the Consumer Price Index (CPI) inflation data release in the US on Tuesday. The US Headline CPI rose 3.2 per cent (year-on-year) in October, down from 3.7 per cent in September. The Core CPI rose 4 per cent (year-on-year) for the same period, down from 4.1 per cent in the previous month. Cooling inflation has increased hopes in the market that the US Federal Reserve would keep the rates unchanged at 5-5.25 per cent in the next meeting in December.
The next Fed meeting is on December 13. So, the current sentiment can continue to drive the markets at least for the next couple of weeks, if not until the next Fed meeting. As such, the dollar index can continue to remain under pressure.
The fall to 104 has happened in line with our expectation. The dollar index (103.92) touched a low of 103.81 last week. The outlook is bearish. Immediate resistance is at 104. Above that, 104.50 and 105 are the next strong resistances. The dollar index can fall to 102-101 in the next few weeks. To avoid this fall, the index has to rise past 105 decisively. That looks unlikely at the moment.
The US 10Yr Treasury Yield (4.43 per cent) has declined below the key level of 4.5 per cent. Resistance will now be in the 4.48-4.5 per cent. Failure to rise above 4.5 per cent from here can take the yield down to the crucial support region of 4.35 per cent to 4.3 per cent this week. The price action, thereafter, will need a close watch. A break below 4.3 per cent will be bearish for the 10Yr yield to see 4.1 per cent on the downside.
The euro (EURUSD: 1.0915) has surged breaking above the key resistance level of 1.08. Our bearish view of seeing a fall to 1.05-1.04 stands negated for now.
The near-term outlook is bullish. Support will be in the 1.08-1.0780 region. The euro can rise to 1.11 and even 1.12 in the coming weeks.
The Indian rupee (USDINR: 83.27) strengthened towards 83 initially after the US inflation data release, but could not sustain. The domestic currency, which made a high of 83.01, reversed lower, giving back most of the gains. It has closed the week at 83.27.
Broadly, the sideways range remains intact. The range has slightly widened from 83.00-83.30 to 83.00-83.35. The rupee can continue to oscillate within this range.
However, as mentioned last week, the long-term charts are looking bearish. As such, we expect the rupee to break below 83.35 eventually. Such a break can take the rupee down to 84-84.50. It will also keep the domestic currency under pressure to see even 85 on the downside over the medium term.