The dollar is continuing its struggle to rise. The dollar index rose to a high of 107.99 earlier last week but failed to sustain. The minutes of the US Federal Reserve’s November meeting indicated some prospects of slowing down the rate hike pace. That had dragged the dollar index sharply lower. The dollar index fell to a low of 105.63 and has closed the week at 105.96, down 0.91 per cent.
The upcoming week could be a volatile one as series of important data releases are due. The US GDP data will be released on Wednesday. This will be followed by the Fed’s inflation gauge — the Personal Consumption Expenditure (PCE) data release on Thursday. If the PCE data gives a sign of a slowdown, then that will be negative for the dollar. Finally, on Friday, job numbers and the unemployment rate will be released.
The near-term outlook is mixed for the dollar index (105.96). An important support is at 105. The index has to sustain above this support to move back up to 108 again. A break below 105 will increase the downside pressure. Such a break can drag the index down to 104 and 103 in the coming weeks.
Important resistance to watch will be 108. The index has to rise past 108 to get a breather. Such a break can take it up to 109.50-110, going forward.
The movement this week week will be very important. If the dollar index manages to sustain above 105 and rises back to 108, then there could be a possible double-bottom formation on the charts. We will have to wait and watch.
The support at 1.02 on the euro (EURUSD: 1.0395) has held well as expected. The currency made a low of 1.0223 and then saw a sharp rise to make a high of 1.0448. The euro seems to be lacking strength to break decisively above the 200-Day Moving Average resistance, which is currently at 1.0387.
However, on the weekly chart, the bias is positive with strong support in the 1.0230-1.0200 region. This keeps the chances alive of the euro breaking decisively above 1.04 in the coming days. Such a break can take it up to 1.06-1.0650.
The currency will come under pressure only if it breaks below 1.02. In that case, it can fall to 1.0050-1.00.
The immediate resistance at 3.85 per cent mentioned last week itself held very well. The US 10Yr Treasury (3.68 per cent) yield touched a high of 3.84 per cent on Monday and then continued to fall for the rest of the week. The yield has closed on a weak note at 3.6 per cent.
Immediate resistance is at 3.70 per cent. As long as the 10Yr Treasury yield stays below this resistance, the chances are high for it to fall further towards 3.55-3.5 per cent or even 3.45-3.4 per cent in the coming weeks.
The Rupee (USDINR: 81.66) managed to remain above 82 in line with our expectation. The domestic currency traded in a narrow range of 81.43-81.91 last week. There is no major change in the view.
Resistance is at 81.50-81.40. As long as the rupee trades above 82, the chances are high for it to break above 81.40. Such a break can take it up to 81.10-81 in the short term. As mentioned last week, it will also keep the doors open for the rupee to strengthen towards 80.50 and even 80 over the medium term. But a strong break above 81 has to be seen for that.
The rupee will come under pressure only if it breaks below 82. In that case, it can fall to 82.40-82.50 against the dollar.