The US dollar is continuing to trade strong. The rise in the US Treasury yields has been pushing the dollar index higher for almost more than two months now. Expectation in the market that the interest rates in the US will continue to remain high for long time is aiding the Treasury yields to sustain and move higher. Broadly, the recent rise in the dollar and the Treasury yields are likely to continue unless any new negative trigger for them comes into the market.
Contrary to our expectation, the dollar index (106.17) has risen breaking above the key resistance level of 106. Although it fell on Friday, the index has risen back from the low of 105.66 to close above 106. Support can be now at 105 and 104. The chances are high for the dollar index to see a rise to towards 108 in the short term.
This bullish view will go wrong only if the index declines below 104. That looks less likely.
Treasury yields outlook
The US 10Yr Treasury yield (4.57 per cent) surged breaking above the key resistance level of 4.6 per cent, but did not sustain. It made a high of 4.68 per cent and has come down from there. Support is at 4.5 per cent and resistance at 4.6 per cent. A breakout on either side of these levels will determine the next leg of move for the yield.
A strong break above 4.6 per cent will see the current uptrend extending up to 4.7 per cent and even 4.8-4.85 per cent in the coming weeks. On the other hand, a break below 4.5 per cent will turn the short-term outlook negative. In that case, the 10Yr Treasury yield can fall to 4.3 per cent.
The euro (EURUSD: 1.0573) declined sharply breaking below the key support level of 1.0580. It made a low of 1.0488 and has risen back from there. Resistances are at 1.06 and then in the 1.0670-1.0700 region. If the recent bounce sustains, the euro can test 1.06-1.07 on the upside. However, a rise beyond 1.07 is less likely. The broader picture is weak, and the outlook remains bearish. As such, we can expect the euro to fall to 1.04 either from here itself or after a corrective rise to 1.06-1.07.
The Indian Rupee (USDINR: 83.04) was stuck in between 83 and 83.25 all through last week. This keeps the broader 82.80-83.25 range intact.
The price action on the daily chart indicates that rupee can move up within the range in the near term. That is, a test of 82.80 – the upper end of the range is likely this week.
The broader outlook is unclear. We will have to wait for a breakout on either side of 82.80 or 83.25 to get clarity on the next direction of move.
A break above 82.80 can take the rupee up to 82.50. On the other hand, a break below 83.25 will see the rupee depreciating towards 83.50-83.70.