The dollar index began the week on a weak note and fell sharply in the first half of the week. Weak economic data releases dragged the greenback lower. Data release on Tuesday showed that the US Consumer Confidence fell sharply to 106 in August from 114 in the previous month. This was the major trigger to take the dollar index lower. The index made a low of 102.94 and then reversed sharply recovering all the loss in the last two trading days.

The US jobs data release on Friday was slightly mixed. On the one hand, the non-farm payrolls increased by 187,000 beating the market expectation, but on the other hand, the unemployment rate increased to 3.8 per cent in August from 3.5 per cent a month ago.

Dollar outlook

The support in the 103.50-103 has held very well on the dollar index (104.24). This keeps the bias bullish for the index. We retain the view of seeing a rise to 105-106 in the short term. The index has to decline below 103 now to become negative.

As mentioned last week, 100-106 has been the broad trading range since the year beginning. As such the chances of a reversal from around 106 cannot be ruled out if the range is going to remain intact. So, the price action near 106 should be watched closely.

Support holds

The US 10Yr Treasury yield (4.18 per cent) fell towards 4.1 per cent initially in line with our expectation. The yield made a low of 4.05 per cent, but then reversed sharply higher from there on Friday.

Strong support is around 4 per cent. As long as the 10Yr yield stays above this support, the outlook is bullish. A rise to 4.4-4.45 per cent can be seen in the coming weeks. This can aid the dollar index to move higher towards 105-106 as mentioned above.

Bearish bias

The euro (EURUSD: 1.0780) has come down sharply failing to get a strong follow-through rise above 1.09. The currency rose to a high of 1.0945 and then declined sharply giving back all the gains. 

There is an immediate support at 1.0750. But the daily chart is looking very weak. It leaves the euro vulnerable to break 1.0750 this week. Such a break can drag it down to 1.06 and even lower.

Range bound

The Indian rupee (USDINR: 82.72) remained stable and in a narrow range all through last week. 82.50-82.81 was the trading range. The immediate outlook is unclear. The rupee can continue to remain stable within the 82.50-82.80 range for some more time.

A breakout on either side of 82.50-82.80 will then determine the next move. A strong break below 82.80 can drag the rupee down to 83 and 83.20 again. On the other hand, if the rupee manages to break 82.50, it can see some recovery towards 82.30-82.25.

Considering the bullish outlook in the dollar index and the US Treasury yields, the chances are high for the rupee to break 82.80 and fall to 83-83.20, going forward.

Rupee watch
Rupee can break 82.80 and fall to 83-83.20 going forward on the back of strong dollar and rising US Treasury yields