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The dollar index has risen towards 105 in line with our expectation. Following the Consumer Price Index (CPI), the US Personal Consumption Expenditure (PCE) data also showed an uptick last week. The PCE is the inflation gauge that the Federal Reserve keeps an eye on for policy decisions. The PCE rose 4.7 per cent (year-on-year) in January. This pushed the US Treasury yields higher on Friday. That, in turn, accelerated the upside momentum in the dollar index.
Overall, the recent inflation data releases from the US has raised the hopes in the market that the Federal Reserve will retain its aggressive stance on the rate hikes. There are also increasing talks in the market for a possible 50-basis point rate hike in March. This market expectation can continue to push the Treasury yields higher. That, in turn, will keep the dollar strong, going forward.
More rise
The near-term outlook remains bullish for the dollar index (105.21). The index can rise to 106 from here. The level of 106 is an important near-term resistance. It is important to see if the index is managing to breach 106 easily or not. A decisive break above 106 will be very bullish. Such a break can take the dollar index up to 108 in the coming weeks.
If the index fails to break above 106, a corrective dip to 105-104.50 can be seen. Overall, the price action around 106 will need a close watch this week.
Strong footing
The US 10Yr Treasury yield (3.94 per cent) has closed the week on a strong note. Although the daily chart reflects a range-bound move, the weekly charts are looking strong. Immediate resistance is at 4 per cent. A strong break above it can take the 10Yr Treasury yield up to 4.1 per cent initially and then to 4.2-4.25 per cent eventually. Such a move will turn the big picture very bullish. The rise above 4 per cent can increase the chances of seeing 4.4-4.5 per cent from a medium-term perspective.
Immediate support is at 3.9 per cent. Failure to rise past 4 per cent and a fall below 3.9 per cent can take the yield down to 3.8 per cent. In that case, 3.8-4 per cent can be the trading range for some time.
More fall
The euro (EURUSD: 1.0548) has declined breaking below the support at 1.06 as expected. This keeps intact the overall bearish outlook. Resistance is around 1.0650. As long as the euro trades below this resistance, a further fall to 1.04 is on the cards in line with our expectation.
The region around 1.04 is a strong support for the euro. We can expect the current downtrend to halt around 1.04 and the euro to reverse higher thereafter.
Range bound
The Indian Rupee (USDINR: 82.75) was stuck in a narrow range last week. The domestic currency was range bound between 82.62 and 82.86.
The near-term outlook is mixed. The rupee can continue to remain in a sideways range of 82.60-83.00 for some more time. A breakout on either side of 82.60-83.00 will then determine the next leg of move.
A break below 83 will be bearish. Such a break can drag the rupee down to 83.30 and 83.50. On the other hand, a break above 82.60 can provide some relief for the rupee. In that case, the rupee can recover towards 82.30-82.20.
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