The support at 95.20-95 mentioned last week on the US Dollar index has held very well. The index made a low of 95.17 on Thursday and bounced back to close just above 96. The US Treasury yield surging above 2 per cent after the inflation data release on Thursday aided the dollar index to move back up.
The Headline Consumer Price Index (CPI) inflation in the US rose 7.5 per cent (year-on-year) and the Core CPI surged 6.04 per cent (y-o-y) in January. Strong rise in inflation strengthened the case for a rate hike from the US Federal Reserve in March. This resulted in a spike in the US 10Yr Treasury yield to a high of 2.05 per cent on Thursday. In addition to this, comment from James Bullard, President of the Federal Reserve Bank, St. Louis, that he is open for a 50-basis point rate hike in March itself aided the yields to surge. However, the 10Yr Treasury yield has come off from the high and closed at 1.94 per cent on Friday.
For the coming week, the US retail sales, Index of Industrial Production (IIP), housing starts and existing home sales are the important data release to watch.
The outlook for the US 10Yr Treasury (1.94 per cent) yield remains bullish. Good support for the yield is at 1.9-1.85 per cent region. As long as the yield remains above this support zone, the chances are high for it to rise back above 2 per cent again. Such a rise can take it up to 2.1-2.2 per cent in the coming days. Significant resistance is in the 2.1-2.2 per cent region. There is a strong likelihood of seeing a corrective fall from the 2.1-2.2 per cent region towards 1.9-1.85 per cent, going forward, in the coming weeks.
Dollar Index: Support holds
The US Dollar Index (96.03) has risen back well from its 95.20-95 support zone. Immediate support is now available at 95.50 and below that 95.20-95 can continue to limit the downside. The outlook is bullish. A sustained rise past 96 can take the dollar index higher towards 97-97.50 again.
The danger of seeing 94.50-94 on the downside mentioned last week stands reduced now. As such our medium-term bullish view of seeing 100 levels remains intact. From a bigger picture, 97.50-98 will be a crucial resistance to watch. A strong rise past 98 will pave the way for a further rise towards 100-101 in the coming months.
Euro: Can fall again
The Euro (EURUSD, 1.1349) seems to lack fresh buyers to take it above 1.15. The currency hovered below 1.15 initially. It made a high of 1.1495 and fell sharply on Friday to close at 1.1349. Inability to break above 1.15 and the subsequent fall on Friday indicates the inherent weakness in the currency. This keeps our overall bearish view intact. Near-term support is in the 1.13-1.1270 region. A break below 1.1270 will increase the downside pressure and drag it to 1.12 in the near term. It will also keep the medium-term bearish view of seeing 1.10-1.08 on the downside intact. A decisive break below 1.12 can trigger the expected fall to 1.10-1.08 in the coming months.
The Indian rupee (USDINR, 75.38) remained under pressure all through the week. The rise in US Treasury yields took the currency below 75 in the past week. Rupee has closed the week at 75.38, down 0.91 per cent for the week.
The Reserve Bank of India (RBI) kept both the repo and reverse repo rates unchanged at 4 per cent and 3.35 per cent respectively last week. Market was expecting the central bank to increase the reverse repo rate by 25 basis points.
The outlook remains bearish. Immediate resistance is at 75 and the next strong one will be at 74.75. Support is at 75.60. A break below it can drag the Indian rupee down to 75.90-76 this week. A further break below 76 can take the currency further lower towards 76.20. On the charts, there is a chance of seeing a corrective rise either from 75.90 or 76.20 towards 75.50 before the rupee breaks below 76.20 and weakens to 76.50 and lower levels eventually over the medium term.