The dollar index has been broadly stable over the last couple of weeks. The index was stuck in a narrow range of 103.75-104.93 last week. It has closed the week at 104.31, down 0.37 per cent.

As the market enters the year-end holiday season, we can expect muted trading over the next couple of weeks. There is no major data release also from the US for the coming week. As such, we can see the dollar index continuing to remain stable and in a sideways range for some time.

Range bound

The dollar index (104.31) has been broadly range bound between 103.50 and 105 over the last two weeks. This range can continue to remain intact at least in the coming week too, on the back of reduced trading volume ahead of the new year.

As such we have to wait for a breakout on either side of 103.50-105 to get a clear indication on the next leg of move. A break below 103.50 will drag the dollar index down to 102.50-102 – the crucial support zone. On the other hand, a break above 105 will open the doors for a rise to 106-107.

Scope to rise

The euro (EURUSD: 1.0617) remained muted and in a very narrow range. The trading range witnessed last week was 1.0573-1.0659. The overall trend remains up. There is support at 1.0530 and 1.05. So, as long as the euro stays above 1.05, the short-term outlook is bullish to see 1.09-1.10 on the upside.

In case euro breaks below 1.05, a corrective dip to 1.04-1.0350 can be seen first and then a fresh rally can begin targeting 1.09-1.10 on the upside.

Bullish

The US 10Yr Treasury yield (3.75 per cent) has risen sharply last week. The resistance at 3.65 mentioned last week has been broken decisively. Now, 3.65-3.6 per cent region will be a very good support and can limit the downside. The outlook is bullish. The 10Yr yield can rise to 3.85-3.9 per cent from here. A break above 3.9 per cent can see an extended rise to 4.1 and even 4.2 per cent in the short term. The big picture is also looking strong. As such, if the current momentum sustains, we will not be surprised to see levels of 4.5-4.8 on the US 10Yr Treasury yield next year.

Rupee watch
Rupee can weaken gradually towards 83.25 and 83.50 in the coming weeks
Bearish

The Indian rupee (USDINR: 82.87) remained below 82.50 all through last week. The rupee oscillated between 82.58 and 82.88. It has closed on a flat note at 82.87 in the domestic market. In the off-shore segment, the rupee has closed at 82.78 against the dollar.

On the chart, the overall bias is still negative. Immediate resistance is at 82.70. Below that 82.50-82.40 will continue to act as a strong short-term resistance.

We can expect the rupee to weaken gradually toward 83.20-83.25 in the near term initially and then 83.50 eventually in the short term.

As mentioned last week, the Indian rupee has to breach 82.40 to get a breather. Such a break will see the rupee recovering towards 82.20 and 82 going forward. But such an upmove looks less probable as seen from the chart. As such we see high chances of the rupee weakening to 83.25 and 83.50 in the coming weeks.

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