The US dollar has risen sharply towards the end of last week. Increasing risk aversion in the market has aided the greenback to surge. The uncertainty prevailing over the US debt ceiling limit increase is keeping the market sentiment nervous.

The US dollar index rose 1.45 per cent last week to close near the upper end of its 101-103 range at 102.68. The euro has declined sharply breaking below the key support level of 1.09.

The currency, closing at 1.0849, was down 1.54 per cent for the week. The strength in the dollar has dragged the Indian rupee also lower last week. The domestic currency has closed the week at 82.15, down 0.45 per cent.

The concerns over the US debt ceiling have overshadowed the impact inflation data last week. The US Consumer Price Index (CPI) data continues to show signs of cooling down. The US CPI in April rose 4.96 per cent, marginally lower than 4.99 per cent seen in the previous month. This had raised the hopes in the market for the US Federal Reserve to pause the interest rate hikes.

Crucial juncture

The dollar index (102.68) and the euro (EURUSD: 1.0849) are coming closer to a crucial trend deciding level. 103 on the dollar index and 1.08-1.0780 on the euro are important levels to watch this week.

The euro can fall to test 1.08-1.0780 this week, which, in turn, can take the dollar index up to 103. The price action thereafter will need a close watch. A decisive break below 1.0780 can drag the euro to 1.0650. That will be bullish for the dollar index to breach 103 and rise to 104.

On the other hand, if the euro manages to bounce back from around 1.08, it can rise to 1.09 and 1.10 again. So, the dollar index will come down from 103 towards 102 and 101 again. That will keep the 101-103 range in the dollar index intact. We will have to wait and watch.

Rupee watch
Rupee has strong resistances at 82 and 81.90. It can weaken towards 82.65-82.70 and even 83
More weakness

Contrary to our expectation to strengthen beyond 81.65, the Indian Rupee (USDINR: 82.17) weakened last week. The domestic currency was under pressure all through the week. It fell to a low of 82.23 before closing the week at 82.17, down 0.45 per cent. So, our view of the rupee strengthening towards 81.50-81.25 has been negated now.

Strong and immediate resistances are at 82 and 81.90. The chances are high for the rupee to stay well below this hurdle. As such rupee can weaken further towards 82.65-82.70 in the near term. A further break below 82.70 will drag the domestic currency down even to 83 in the short term.

Rupee has to break above 81.90 to get a breather and recover towards 81.70. That looks less probable as seen from the price action on the charts.

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