An early sign of recovery is emerging in the dollar index. The US Federal Reserve meeting outcome failed to create any impact on the market. The 25-basis points rate hike turned out to be a non-event as that was largely expected. Indeed the dollar index fell after the Fed meeting outcome as the central bank acknowledged that the inflation in the US has started to cool down. The index made a low of 100.82 and then managed to bounce back well. The strong jobs data release on Friday aided the bounce back move in the dollar index to gain momentum.

Data release on Friday showed that the US added 517,000 jobs in its non-farm payroll in January. This was much higher than the market expectation for an addition of 187,000 jobs. The unemployment rate fell to 3.4 per cent. The strength in the job data triggered a sharp rise in the US Treasury yields. That, in turn, took the dollar index also higher.

Crucial Resistance

The dollar index (102.92) has a key resistance at 103. It is important to see if the index is surpassing this hurdle or not. Only a sustained break above 103 will turn the outlook bullish to see 105-106 on the upside. Failure to breach 103 can drag the index down again. In that case the index can oscillate in a range of 101-103 for some time.

Correction ahead

As expected, the euro (EURUSD: 1.0795) has reversed sharply lower after testing the 1.10-1.11 resistance zone. The currency has come off sharply from the high of 1.1033, thereby turning the picture weak on the charts.

Resistance will now be at 1.09. Support is at 1.0735. As long as the euro trades below 1.09, the chances are high for it to break below 1.0735. Such a break can take it down to 1.0550-1.05 in the coming weeks.

Mixed outlook

The US 10Yr Treasury yield (3.52 per cent) has risen back sharply from the low of 3.33 per cent. However, the yield is still below the key resistance level of 3.58 per cent. Broadly, the outlook remains unclear.

A break above 3.58 per cent can take the 10Yr yield up to 3.65-3.7 per cent. But failure to rise past 3.58 per cent can drag it down to 3.33-3.30 per cent again.

Overall, 3.30-3.58 per cent is trading range for now. We will have to wait for the range breakout to get clarity on the next move.  

Rupee watch
Rupee is likely to weaken towards 82.90 in the short term
More weakness

The Indian rupee (USDINR: 81.83) remained subdued all through the week. The currency has closed on a weak note at 81.83 in the onshore market. The strong rise in the dollar index after the jobs data on Friday has dragged the rupee below 82 in the offshore segment. The Indian rupee has closed at 82.21 in the offshore market.

This leaves the chances high for the rupee to open below 82 on Monday. The outlook is negative. Cluster of resistances are there in the 81.70-81.50 region. We can expect the rupee to weaken towards 82.90 in the short-term.

The rupee has to break above 81.50 decisively to get a breather. Only in that case the domestic currency can see a recovery towards 81.

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