Global 360: Is the US dollar preparing for upward march?

Gurumurthy K |BL Research Bureau | Updated on: Jun 25, 2022

A near-term dip to 103 or 102.50 is possible before the overall upmove resumes

Currency market remained broadly stable last week. The US dollar index oscillated up and down between 103.85 and 105. It has closed the week at 104.19. The euro was range bound between 1.0450 and 1.06. The broader trend remains the same. The dollar continues to look strong, and the euro is weak and vulnerable for a fresh fall. However, in the short-term the greenback has chances to give back some of the gains before resuming its overall uptrend. So, any weakness in the dollar, going forward, is likely to be short-lived.

A few important data releases scheduled for this week will need a close watch. First will be the US Consumer Confidence on Tuesday. It will be followed by the US GDP numbers on Wednesday. The growth numbers will be very crucial as it will give a hint on whether the US is heading into a recession or not. On Thursday, the Personal Consumption Expenditure (PCE) – the US Federal Reserve’s inflation gauge, will be released. A strong PCE number will confirm another 75-basis points rate hike from the Fed in July.

Dollar Index: Short-lived fall possible

The range of trade for some time has been 103.50-105 on the dollar index (104.19). On the charts, there is room for a fall to 103 in the near-term. In case of a break below 103, the downside can extend up to 102.50-102. But a further fall beyond 102 is unlikely. To avoid this fall to 103 and lower levels, the dollar index has to rise past 105 immediately. In that case a rise to 106 can be seen in the short-term.

From a bigger picture, 102.50-102 is a strong support. The dollar index has to see a sustained fall below 102 to turn bearish. That looks less probable as seen from the charts. So, as long as the dollar index sustains above 102, the long-term view remains bullish. The index can break 106 and rise to 110 and even higher in the coming months.

Euro: Range intact

The euro (EURUSD: 1.0553) remained well within the 1.0350-1.06 range. There is no major change in the view. We reiterate that 1.06, 1.07 and 1.08 are the series of important resistances to watch on the upside. The euro has to breach 1.08 to become bullish to see 1.10 on the upside and also to ease the downside pressure.

But since a fall below 102 on the dollar index is less likely, the upside in the euro can be capped at 1.08 even if a break above 1.06 is see just now.

The bigger picture remains weak for the euro to break 1.0350 and fall to 1.02 and 1.00.

Rupee watch
Crucial support is at 78.50. A break below it can drag the rupee further lower

Treasury yields: More room to fall

The US Treasury yields have come down last week. The US 10Yr Treasury yield (3.13 per cent) has declined below the intermediate support level of 3.2 per cent. This has opened the doors for a corrective fall. As mentioned last week, the 10Yr can fall to 3 per cent and 2.9 per cent. Thereafter, a fresh rise is possible to keep the overall uptrend intact. The 10Yr has to rise past 3.5 per cent now to bring back the bullishness.

Rupee weakens

The Indian Rupee (USDINR: 78.35) broke below 78.20 and fell to a new all-time low of 78.39 last week. This keeps our broader bearish view intact. Immediate resistance is at 78.50. A break below it will pave way for a further fall to 79 and even lower levels. From big picture, the current fall in the rupee will have potential to target 80-81 on the downside on a sustained break below 78.50.

If the rupee manages to hold above 78.50, a range of 78.20-78.50 (narrow) or 78-78.50 (broad) can be seen for some time.

Published on June 25, 2022
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