The US dollar broadly remained stable all through the week barring the sharp fall witnessed on Friday. Sudden talks in the market on the possibility of the US Federal Reserve slowing down the pace of future rate hikes weighed on the green back on Friday. However, the recent inflation data release does not leave much room for the Fed to slow down.
As projected in its last meeting in September, the Fed is more likely to go ahead with a total of 125 basis points rate hike in its next two meetings for the rest of the year. For now, the market is pricing in another 75-basis point rate increase in November. The data releases in the future will need a close watch to see if it can change the Fed’s action plan.
The US GDP data on Thursday and the Personal Consumption Expenditure (PCE) — the Fed’s inflation gauge are the important data releases to watch this week from the US.
Resistance holds
Dollar index (112.01) is struggling to breach 114. It made a high of 113.94 and has come off sharply last week. The near-term outlook is mixed. Important support is at 111.20-111.00. A break below it can drag the index down to 110. Broadly, 111-114 or 110-114 can be the trading range for the US dollar index in the short term. Within this, the bias is inclined towards bearishness to see the dollar index declining towards 111 and even 110 in the coming weeks.
The dollar index has to break and see a decisive weekly close above 114 in order to regain the bullish momentum. Only in that case, the chances of seeing 115-116 and even higher levels will come into picture.
Mixed outlook
The euro (EURUSD: 0.9862) is managing to hold above 0.97, but is not gaining momentum to rise. Resistance is at 0.9935. The euro has to break above this resistance to go back to parity against the greenback. The currency can test 1.0120 if a strong break above 0.9935 is seen.
Near-term support is at 0.9700. The currency will come under pressure again only if it falls below 0.97. In such a case, the euro can fall back to 0.96 and 0.9550. It is a wait-and-watch situation for now. The price action in the coming week will need a close watch to get clarity on the direction of move.
Still strong
The US 10Yr Treasury Yield (4.21 per cent) continued to surge last week in line with our expectation. The 10Yr yield made a high of 4.33 per cent on Friday and has come off sharply. However, this reversal on Friday has not altered anything on the charts. The yields still look strong and bullish.
Support for the yield is at 4.12 per cent. Below that, 4 per cent is the next strong and crucial support. The 10Yr Treasury yield has to fall below 4 per cent in order to indicate a trend reversal and turn bearish.
For now, the trend continues to remain up and the outlook is bullish. The 10Yr Treasury yield can rise to 4.45-4.5 per cent the coming days.
Unclear
As expected, the resistance at 82 on the Indian Rupee (USDINR: 82.68) held very well last week. The domestic currency made a highṭ of 82.05 and weakened sharply below 83. It made a new low of 83.29 on Thursday against the US dollar, but has managed to recover well from there. The rupee has closed the week at 82.68.
The immediate outlook is mixed. Rupee can broadly oscillate in a range of 82-83.30 for some time. A breakout on either side of this range will give clarity on the next move.
The coming week is a truncated one with only three trading days. Markets are closed on Monday and Wednesday. So we will have to wait and watch how the rupee closes in the coming week to get a clear picture on the next move.