The dollar index broadly remained stable in a sideways range last week. 104-105.35 was the range of trade. Interestingly, there was a slight divergence witnessed last week between the US 10Yr Treasury yield, the dollar index and the Indian rupee last week.
Barring the sharp fall on Friday, the 10Yr yield continued to remain strong and indeed rose above 4 per cent as expected. However, that did not push the dollar index higher much. So, if the yield extends the fall in the coming week, then that might be negative for the greenback. Also, the Indian rupee continued to strengthen last week as the dollar index remained stable.
For the coming week, the US non-farm payroll and the unemployment rate are the important data to watch. They will be released on Friday. The inflation data, which is due for release the next week, is also very crucial.
The price action last week leaves the short-term outlook mixed for the dollar index (104.52). Support is at 104. Resistances are at 105.50 and 106. So, a broad range of 104-106 is a possibility for some time. A breakout on either side of 104-106 will determine the next leg of move.
A break above 106 will be bullish and the index can see 108 on the upside. On the other hand, if the dollar index breaks below 104, a fall to 102 and even lower levels is possible.
The US 10Yr Treasury yield (3.95 per cent) broke 4 per cent last week and made a high of 4.09 per cent. But thereafter it fell sharply on Friday to close at 3.95 per cent.
An important support is at 3.9 per cent. The 10Yr has to sustain above this support to keep the chances alive of rising back above 4 per cent again. Resistance is in the 4.05-4.10 per cent region. A break above 4.1 per cent can take the yield up to 4.2-4.25 per cent.
On the other hand, if the 10Yr Treasury yield breaks below 3.9 per cent, it can fall to 3.75-3.7 per cent.
The euro (EURUSD: 1.0635) was stuck between 1.0530 and 1.07 for the second consecutive week. The immediate outlook is not clear. A breakout on either side of the current range will decide the next move.
A break below 1.0530 can take the euro down to 1.05-1.0480 – the next important support zone. Failure to bounce back from around 1.0480 can drag the currency further down to 1.04 and then a reversal is possible.
On the other hand, a strong break above 1.07 can ease the downside pressure. Such a break can take the euro up to 1.09.
The Indian Rupee (USDINR: 81.97) remained strong all through the week. The domestic currency was inching up since the beginning of the week and the up-move accelerated on Friday.
The currency has closed just above 82 at 81.97 in the onshore market. However, in the offshore segment the rupee has strengthened further sharply to close at 81.68. So the chances are very high for the Indian rupee to open with a wide gap-up on Monday in the onshore segment.
Broadly, the 81-83 range seems to remain intact. As such, we can see the rupee strengthening towards 81.10-81.00 and even 80.80-80.75 in the short term. Thereafter, a reversal is possible. Supports are in the 82.15-82.25 region.
The 81.00-80.75 is a strong resistance zone. A strong trigger might be needed for the rupee to strengthen beyond this.