Dollar seems to be stabilising ahead of the US Federal Reserve meeting this week. The dollar index managed to hold above 104. The attempt to bounce from around 104 seems to be lacking momentum. The index made a high of 105.82 and has come off from there to close the week at 104.81.
The coming week is packed with a series of important events. On the data release front, the US Consumer Price Index (CPI) inflation data release is due on Tuesday. Any sign of the inflation slowing down will be negative for the dollar.
This will be followed by the US Federal Reserve meeting outcome on Wednesday. A 50-basis point rate hike is already factored in the market. What is important to watch will be the economic forecast.
Outside the US, both the European Central Bank (ECB) and the Bank of England (BoE) monetary policy meeting outcome are due on Thursday.
The immediate outlook is mixed for the dollar index (104.81). There is no sign of a strong reversal yet. Series of resistances are at 106, 107 and 108. Only a decisive rise past 108 will give a strong sign of a reversal and take the index up to 110-111 in the short term.
For now, the overall picture is still weak. As such the dollar index is vulnerable to break the support at 104. Such a break can drag it to 102 in the coming weeks.
The euro (EURUSD: 1.0540) is now poised at a very important level. A strong resistance is at 1.06 which is holding well now. The weekly chart indicates that a failure to breach 1.06 decisively can drag the euro down to 1.04-1.0350 in the coming weeks.
But the daily charts are relatively looking strong with a strong support around 1.05. As long as the euro sustains above 1.05, the chances are high for the euro to breach 1.06 and rally to 1.09-1.10 in the coming weeks.
Overall, it is a wait-and-watch situation.
The US 10Yr Treasury yield (3.58 per cent) has risen back well after making a low of 3.4 per cent last week. Immediate resistance is in the 3.6-3.65 per cent region. A strong break above 3.65 per cent will be bullish to see 3.7-3.75 per cent on the upside this week. That will also give an initial sign of a trend reversal.
However, the big question is whether the yield can rise beyond 3.75 per cent or not. That will depend on the outcome of the Fed meeting on Wednesday. A pull back from 3.7-3.75 per cent will keep the broader downtrend intact. In that case, the chances of testing 3.3-3.25 per cent on the downside will remain alive.
Contrary to our expectation, the Indian Rupee (USDINR: 82.28) declined sharply breaking below the support at 81.70. We had expected the rupee to sustain above 81.70, and rise to 81 and 80.80. The bullish view has gone wrong. The currency has closed at 82.28 in the onshore market and 82.41 in the offshore segment.
The outlook is negative. Strong resistance is in the 82-81.90 region. As long as the rupee remains below 81.90, the chances are high for it to weaken towards 83 and 83.50 against the dollar in the coming weeks.
A strong break below 81.90 is needed to get a breather. In that case, the rupee can recover to 81.60. However, the domestic currency has to breach 81.60 in order to regain the bullish momentum.