The dollar continues to remain under pressure. The US Federal Reserve Chairman Jerome Powell in a speech last week indicated that the pace of rate hikes could slow down going forward. That had dragged the dollar index sharply lower from the high of 107.19 last week. Although the index bounced sharply after the jobs data release on Friday, it could not sustain. The index has closed the week at 104.54, down 1.33 per cent.

There is no major data release from the US this week. However, next week, the Fed’s policy meeting outcome is due on Wednesday (December 14). A 50-basis point rate hike has been factored in the market already. It will be important to see the central bank’s economic projections that will be released this time. Any major change in the dot plot could cause volatility in the market.

Downside left

The downtrend in the dollar index (104.54) is intact. There is room for the index to fall further towards 103 and even 102.50-102 from the current levels. The region between 103 and 102 is an important support zone. The chances are high for the dollar index to see a reversal from the 103-102 support zone in the coming weeks. That bounce-back move can take the index up to 104-105 initially and then even higher. However, the overall trend will still continue to remain down. As such, the expected bounce from the 103-102 region will just be a corrective upmove.

Resistance ahead

The euro (EURUSD: 1.0535) has risen sharply breaking above the key 200-Day Moving Average (MA). It is to be noted that this 200-Day MA was capping the upside for more than two weeks. The currency has closed on a strong note at 1.0535 and is up 1.35 per cent for the week.

The outlook is bullish. But a strong resistance is coming up at 1.0630. It can hold on its first test. A pull-back after testing this resistance can see a corrective fall to 1.05-1.0480 initially. A further break below 1.0480 can trigger a steeper fall to 1.0350. However, strong support is in the 1.0350-1.03 region. As such, the corrective fall can be limited to 1.03. A strong bounce thereafter from the 1.0350-1.03 support zone will see a fresh rise. That leg of upmove can break 1.0630 and take the euro up to 1.095-1.10 and even higher over the medium term.

Bearish outlook intact

The US 10Yr Treasury yield (3.47 per cent) has declined further sharply last week. Although the yield broke above the resistance at 3.7 per cent on Wednesday, it failed to sustain. The 10Yr Treasury yield made a high of 3.79 per cent and has come off sharply. Even the bounce on Friday after the jobs data was short-lived and could not sustain. This leaves the overall bearish outlook intact.

Immediate support is at 3.45 per cent. Resistance is at 3.58-3.6 per cent and then at 3.68-3.7 per cent. There are chances to see a bounce the support at 3.45 per cent initially. However, upside is likely to be capped at 3.6 or 3.7 per cent.

The 10Yr Treasury yield still has room on the downside to fall 3.3-3.25 per cent before seeing a strong reversal.

Rupee watch
A range of 81-81.50/81.70 is possible in the near-term and then the rupee can eventually strengthen to 80.80 and 80.50
Room to strengthen

The Indian Rupee (USDINR: 81.32) strengthened breaking above the resistance at 81.40 last week as expected. A test of 81 has also happened in line with our expectation. The rupee made a high of 80.99 and has given back some of the gains from there. It has closed the week at 81.32 in the onshore segment and 81.41 in the offshore market.

Cluster of supports are poised in the broad 81.50-81.70 region. We expect the rupee to sustain above 81.70 and regain its strength going forward. A reversal from the 81.50-81.70 support zone can take the rupee up to 81 again.

For now, 81-81.50/81.70 can be the broad range of trade for some time. But eventually we expect the rupee to break 81 decisively and strengthen to 80.80 initially. A further break above 80.80 will see the rupee rising towards 80.50 over the medium term.

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