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The dollar index surged to a high of 108.54 last week. The boost came from the US Federal Reserve’s rate cut projections for 2025. The Fed cut the rates by 25-basis points (bps) as expected. However, in its economic projections the central bank has left the door open for a total of 50-bps rate cut in 2025. In its earlier forecast made in September, the Fed had kept room for 100-bps rate cut for next year.
The forecast for a slowdown in rate cuts took the US Treasury yields higher which in turn pushed the greenback up. But on Friday, both the yield and the dollar index have come down after the Personal Consumption Expenditure data showed some signs of cooling down.
The dollar index (107.62) has good support in the 107.25-107 region. So, the downside could be limited from here. We expect the index to reverse higher again from around 107 and resume the uptrend. A sustained rise above 108.50 will then clear the way for a rally to 110-111 in the coming weeks.
The short-term picture will turn negative only if the index declines below 107. If that happens, we can see a fall to 106 again.
The US 10Yr Treasury yield (4.52 per cent) has come down from the high of 4.59 per cent. It has immediate support at 4.5 per cent. If the yield breaks below this support, then a fall to 4.35 per cent is possible in the near term. However, a fall beyond 4.35 per cent is less likely. So, the yields can rise back either from 4.5 per cent itself or after an intermediate dip to 4.35 per cent. That rise will keep the broader bullish view intact to see 4.8 per cent on the upside in the coming weeks.
The euro (EURUSD: 1.0430) fell well beyond our expected level of 1.0380. The currency touched a low of 1.0343 and then has bounced back to close the week at 1.0430. Resistance is in the 1.0450-1.0500 region. So, the upside is likely to be capped at 1.050 going forward. A fresh fall either from here itself or after a rise to 1.0500 can drag the euro down to 1.0350-1.0300 in the short term.
The Indian rupee (USDINR: 85.02) declined below the psychological 85-mark last week. The domestic currency touched a new low of 85.10 and then has recovered slightly. In the onshore segment it closed the week at 85.02. But the fall in dollar index in the US session on Friday has aided the rupee to rise above 85 and close at 84.95 in the offshore market.
On the charts, the outlook is bearish. Resistance is at 84.90 which can cap the upside. Support is at 85.10. The rupee remains vulnerable to break 85.10 and fall to 85.30 in the short term.
Published on December 21, 2024
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