The fall in the US dollar index paused last week. The index made a low of 105.34 and has risen back from there. Although the movement in the past week is giving some sign of relief for the dollar, the broader picture is still weak. As such any bounce in the near term will be short-lived and the upside is likely to be capped.
Room to fall
The US Dollar index (106.93) remained stable in a range of 106-107.3 after bouncing from the low of 105.34. The immediate outlook is mixed. But as seen from the daily chart, as long as the dollar index sustains above 106, the chances are high for it to see a corrective rise in the near term. A decisive break above 107.3 can take the index up to 108.50 or 109 in the coming days.
However, the region between 108.50 and 109 is a strong short-term support that can cap the upside. We can expect the dollar index to reverse lower from the 108.50-109 resistance zone. That leg of down-move can take the dollar index down to 104-103 in the coming weeks.
At a resistance
The euro (EURUSD: 1.0325) is struggling to break above 1.04 decisively. The 200-Day Moving Average (DMA) at 1.0412 has capped the upside very well last week. So, as long as the euro remains below 1.04, the chances are high for it to see a corrective fall to 1.02 this week.
The level of 1.02 is a strong support which is likely to hold. As such, we can expect the euro to bounce back from 1.02 to target 1.04 again. In case the euro breaks below 1.02, an extended fall to 1.0050 can be seen.
A decisive rise past the 200-DMA resistance is needed to boost the bullish momentum. Such a break will open doors for the euro to test 1.06 on the upside.
The US 10Yr Treasury yield (3.83 per cent) has risen back well from the low of 3.67 per cent last week. Immediate resistance is at 3.85 per cent. A break above it can take the 10Yr yield up to 4 per cent again. However, a rise above 4 per cent now could be difficult as the broader picture remains bearish on the chart. As such, we can expect the upside to be limited to 4 per cent.
A reversal from either 4 per cent or from 3.85 per cent itself can take the 10Yr down to 3.5-3.4 per cent in the coming weeks.
The 10Yr has to see a decisive rise past 4 per cent to negate the above-mentioned fall.
The Indian Rupee (USDINR: 81.69) has declined sharply last week giving back most of the gains made the week earlier. However, support for the rupee is immediately at 81.90-82.
The chances are high for the rupee to remain above 82 and recover towards 81.40 — an immediate support in the coming days. A break above 81.40 will see the rupee strengthening further towards 81.10-81 in the short term. Such a move will keep the doors open for the rupee to test 80.50 and even 80 on the upside in the coming weeks.
Rupee will come under more pressure only if it declines below 82. In that case, it can continue to fall towards 82.50. But, as seen from charts, we place higher probability for the rupee to sustain above 82 and strengthen again going forward.