Barring the sharp fall in the final quarter, the year 2022 was a strong one for the dollar. The US Federal Reserve’s aggressive rate hikes all through the year helped the US Treasury yields to see a strong surge in 2022. That in turn saw the dollar index surging 20 per cent intra-year and make a high of 114.78 in September. Thereafter it has come off sharply giving back some of the gains. The dollar index has closed at 103.52, up 8.21 per cent for the year.

The strength in the greenback has beaten down the Indian rupee badly last year. The domestic currency has ended the year at 82.74, down 10 per cent. The pull-back in the dollar index towards the end of the year helped the euro to recover some of the loss. The euro has closed 2022 down 5.85 per cent at 1.0705.

Limited downside

The near-term outlook is weak for the dollar index (103.52). Resistances are at 104 and 104.5. However, the downside could be limited. Strong support is coming up near 102. A strong trigger is needed for the index to decline below 102.

As such, we expect the current downtrend can halt around 102, and the dollar index can reverse higher. Such a reversal can take the index up to 104-105 again in the short-term.

Room to rise

The short-term uptrend in the euro (1.0705) is intact. Supports are at 1.0570 and 1.0500. The euro can rise to 1.0930-1.0950 in the next couple of weeks. The price action thereafter will need a close watch. Inability to break above 1.0950 can drag the euro down to 1.05 again. On the other hand, if the euro manages to breach 1.0950, an extended rise to 1.1120 is possible.

Bullish

The US 10Yr Treasury yield (3.87 per cent) has risen well for the second consecutive week. The upmove is gaining momentum. Immediate support is at 3.8 per cent. The 10Yr yield can rise to 3.95 per cent and even 4.05-4.10 per cent in the near term.

As mentioned last week, the long-term picture looks very strong. A sustained rise above 4 per cent will have the potential to take the 10Yr Treasury yield up to 4.8-5 per cent this year.

Rupee watch
82.50-83.00 is the broad range of trade. A breakout of this range will give clarity on the next move
Narrow range

The Indian rupee (82.74) has been stuck in between 82.60 and 82.95 for the second consecutive week. This leaves the immediate outlook mixed.

Resistance is at 82.60-82.50. The rupee has to break above 82.50 in order to strengthen towards 82.10-82 or even 81.80.

On the other hand, support is around 83. A strong break below it can take the rupee down to 83.30-83.50 in the short term. Overall, 82.50-83.00 will be the broad range of trade. A breakout on either side of this range will determine the next direction of move.

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