The dollar has strengthened further last week in line with our expectation. The dollar index sustained well above 103. It has risen and closed on a strong note above 104 last week. The index has closed on a positive note for the third consecutive week. Our broader bullish view remains intact.
Strong rise in the US Treasury yields continues to support the greenback. The uncertainty prevailing over the US debt ceiling talk keeps the market highly risk averse.
The rise to 105 mentioned last week on the dollar index (104.20) is happening in line with our expectation. Support will now be at 103.50. The index can test 105 this week. A strong break above 105, will see the upside extending up to 106 in the coming weeks. Whether the dollar index manages to break above 106 or not will set the trend going forward. So, the price action around 106 is going to be very crucial.
The US 10Yr Treasury yield (3.79 per cent) is also moving up as expected. There is room to rise further from current levels. However, crucial resistance is coming up in the 3.9-3.93 per cent region. The yield can test this resistance this week. If it manages to surpass 3.93 per cent, then an extended rise to 4-4.1 per cent is possible. But failure to breach 3.93 per cent and then a pull-back move thereafter can trigger a corrective fall. In that case, the US 10Yr Treasury yield can fall to 3.75-3.7 per cent going forward. As such, the price action in the 3.9-3.93 per cent region will need a close watch this week.
As mentioned last week, the euro (EURUSD: 1.0723) fell to test 1.07. The currency made a low of 1.0702 and then has recovered slightly from there. It is important now for the euro to sustain above 1.07 and get a strong follow-through rise from here. On the daily chart, Friday’s candle indicates lack of strength and indecisiveness in the market.
A further rise from here can see a corrective rise towards 1.08 or 1.09 in the near term. However, a further rise past 1.09 could be very difficult and looks less probable.
As such, from a big picture, the euro is likely to remain below 1.09 and break 1.07 eventually. Such a break will see the euro tumbling towards 1.05 over the medium term.
The Indian Rupee (USDINR: 82.57) is managing to hold above its support at 83. The domestic currency made a low of 82.85 on Tuesday and has recovered well from there. The rupee has closed the week at 82.57.
The danger of falling below 83 has eased. Rupee can now get support at 82.80-82.85. Immediate resistance is at 82.50. If the rupee manages to sustain above 82.85, the chances are high for it to break 82.50. Such a break can see the rupee strengthening towards 82.25-82.20 against the dollar in the near term.
The danger of the rupee declining below 83 will come into picture only if it breaks 82.80. So, it is a wait-and-watch situation.