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The US dollar is attempting to bounce and trying to avoid a fall to 101. The index has risen back from the low of 101.3 and closed the week at 102.14. However, a strong rise past 103 is needed to completely negate the chances of seeing 101.
The US Consumer Price Index (CPI) release on Friday is the only major data release to watch this week. A strong CPI number will be positive for the dollar.
Dollar index: Supports ahead
Immediate resistances are at 102.5 and 103. The dollar index (102.14) broke above 102.5 last week but failed to sustain. It made a high of 102.73 and has come off from there. So, the dollar index will have to see a decisive break above 103 to bring back the bullishness completely. As long as it trades below 103, the chances of seeing 101 on the downside will still remain alive. However, an extended fall beyond 101 looks less likely.
As such, the broader picture is still bullish. A break above 103 will see the index moving up to 104 and 106. That will also keep the bigger picture very positive to see 110 levels on the upside over the medium term.
Euro: Resistance holds
The euro (EURUSD: 1.0719) is facing strong resistance near 1.08. It is not gaining momentum to breach this hurdle for more than a week now. Last week’s candle indicates indecisiveness in the market.
As long as the euro trades below 1.08, the bias is negative. In that case, the chances are high for it to break below the support at 1.06. Such a break can drag it down to 1.0450-1.04 again. It will also bring the currency under pressure to see 1.02-1.00 on the downside over the medium term.
The euro will have to rise past 1.08 decisively to ease the downside pressure. Such a break can take it up to 1.10 in the short term.
The European Central Bank’s (ECB) monetary policy meeting outcome is on Thursday this week. The ECB President Christine Lagarde said last month that the asset purchase will come to end early-Q3 and rate hike can happen in the July meeting. Market will be watching closely to get clarity or confirmation on the rate hikes. The outcome of the ECB meeting this week could largely influence the movement in euro, going forward.
Treasury Yields: Bullish
The US Treasury yields have risen back last week contrary to our expectation to see a fall. The US 10Yr (2.93 per cent) has bounced sharply from around 2.74 per cent. This has reduced the danger of seeing 2.6 per cent on the downside mentioned last week. A further rise past 3 per cent will completely negate it. Such a rise will then take the 10Yr Treasury yield up to 3.2 per cent and even higher levels in the coming weeks.
Inability to breach 3 per cent can drag the yield down to 2.9-2.8 per cent again. In that case, the chances of seeing 2.7-2.6 per cent on the downside will still remain intact.
Rupee: Indecisive
It was another week of narrow range bound move in the Indian Rupee (USDINR: 77.63). The domestic currency remained stuck in between 77.40 and 77.80 for the third consecutive week. There is no major change in the view. 77.50-77.40 will be the resistance and 77.70-77.80 is the support zone.
The rupee can get some breather if it breaks above 77.40. In that case, it can strengthen towards 77.20 and 77 in the near-term. However, a rise beyond 77 looks a little difficult.
On the other hand, if the rupee breaks below 77.80, it can fall to 78 initially and then to 78.30-78.50 eventually.
The Reserve Bank of India’s monetary policy meeting outcome is due on Wednesday. It will have to be seen if this can trigger the range breakout in the currency.
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