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The dollar index began the week on a positive note. It extended the upmove on Monday, but then lost momentum and remained sideways for the rest of the week. A strong rise in the US Treasury yields last week aided the dollar index to sustain higher. The US 10Yr Treasury yield (3.73 per cent) is looking strong. It has potential to move further up from here. That, in turn, can push the dollar index also up going forward.
Key data
Market is keenly waiting for the US Consumer Price Index (CPI) inflation data release due on Tuesday. A lower CPI number will strengthen the case for the inflation cooling down. That, in turn, can arrest the rally in the Treasury yields and the dollar index. However, a few of the Federal Reserve officials recently have reiterated that the rate hikes will remain in place despite the inflation cooling down. As such, a 25-basis point rate hike will be a given in Fed’s next meeting in March.
Outlook bullish
The dollar index (103.63) looks mixed, and range bound on the daily chart. 103-104 is the trading range. However, as seen from the weekly chart, the break and strong close above 103 leaves the bias positive. As such, the chances are high for the dollar index to break 104 and rise to 105-105.50 in a week or two.
Below 103, important support for the index is at 102.50-102.40. The outlook will turn negative only if the dollar index declines below 102.4. But such a break looks less likely now.
More upside
The 10Yr Treasury yield (3.73 per cent) has risen sharply last week. The key resistance level of 3.58 per cent has been broken decisively. The yield is now poised at the next crucial resistance at 3.75 per cent.
Important support will now be in the 3.57-3.55 per cent region. As long as the 10Yr trades above this support, the bias will remain positive. As such the chances are high for the 10Yr to break 3.75 per cent and rise further to 3.9 in the short term. The level of 3.9 is a very crucial resistance. Whether the 10Yr breaks above it or not will set the medium-term trend. We will have to wait and watch.
Fall more
The fall to 1.0735 on the euro (EURUSD: 1.0678) mentioned last week has happened. Indeed, the currency has extended the fall beyond 1.0735. The short-term outlook is bearish. We retain our view of seeing a fall to 1.0550-1.0500 in the coming weeks. Strong resistance is now at 1.08.
The price action around 1.05-1.04 will need a close watch to see if the euro is reversing higher again or not.
Recovery possible
As expected, the Indian rupee (USDINR:82.51) weakened towards 82.80-82.90 last week. 82.80 and 82.86 are the lows made by the domestic currency in the onshore and offshore markets respectively. The rupee has managed to recover from this low. This is positive for the rupee in the short term.
Important support is at 82.75-82.80. If the rupee manages to sustain above this support, the chances are high for it to strengthen towards 82.25 and even 82 in the coming weeks.
The Indian rupee will need a sustained break below 82.80 to come under pressure again. That looks less likely as of now. From a big picture, 81-83 looks to be the broader trading range and this is likely to remain intact.
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