Technical Analysis

Global 360: Is pressure intensifying on the greenback?

Gurumurthy K |BL Research Bureau | Updated on: May 29, 2022

The dollar index has room to test 101 and then can possibly reverse higher 

The US dollar fell for the second consecutive week. The dollar index fell breaking below the crucial support level of 102.3 mentioned last week and has closed on a weak note. The index was down 1.3 per cent for the week. It has closed at 101.67 and looks vulnerable to fall further from here.

Data release last week showed that the inflation could be cooling down. The Core Personal Consumption Expenditure (PCE) rose at a slower pace of 4.9 per cent (year-on-year) in April as compared to 5.2 per cent in the previous month. This could leave the hopes in the market that the US Federal Reserve could slow down its pace of rate hikes, going forward. The Fed’s minutes of its last meeting showed that a 50-basis point rate hike is possible in the next two meetings. It will be important to see the central bank’s economic forecast that will be released in its next month meeting. For the coming week, the jobs data release on Friday will be important to watch.

Dollar Index: Can fall further

Two consecutive weeks of sharp fall has turned the short-term outlook negative. The US Dollar Index (101.67) can fall to 101-100.9 in the near-term. The region between 101 and 100.90 is a strong support which is likely to halt the current fall. As such, the chances of a corrective bounce from 101 towards 102-102.50 thereafter cannot be ruled out. But if the index breaks below 100.9, though less likely, a steeper fall to 100 can be seen more swiftly. The price action in the 101-100.9 region will need a close watch.

Euro: Has room to rise

The euro (EURUSD: 1.0735) surged breaking above the resistance level of 1.06. The near-term outlook is bullish. There is room for a rise to test 1.08-1.0820 – an important resistance. Whether the euro manages to breach 1.0820 or not will be key in deciding the next move.

A pull-back from the 1.08-1.0820 can drag the currency lower to 1.06 and lower levels again. That will keep the broader downtrend intact. On the other hand, if the euro breaks above 1.0820 decisively, an extended rise to 1.09-1.0950.

The European Central Bank (ECB) President Christine Lagarde last week said the deposit rates will be increased from July and will reach either zero or slightly in positive by September-end. The deposit rates are currently at minus 0.5 per cent. This can support the euro to stay higher.

Treasury yields: Bearish

The US Treasury yields continue to fall. The US 10Yr Treasury yield (2.74 per cent) fell breaking below the intermediate support at 2.8 per cent. This keeps the near-term outlook negative. The yield can fall further towards 2.7 and even 2.6 per cent in the coming days. Thereafter, a fresh rise is possible.

Rupee watch
Rupee is stuck in a tight range. Bias remains negative to break the range on the downside and weaken towards 78-78.30

Rupee: Stuck in a range

The Indian rupee is stuck in a tight range over the last two weeks. The view remains the same. Resistance is in the 77.50-77.40 region. Support is at 77.70-77.80. The rupee can remain stuck between these support and resistance for some more time. A breakout on either side of 77.80 or 77.40 will give clarity on the next direction move. A break above 77.40 will see the rupee strengthening towards 77. On the other hand, a break below 77.80 can drag the rupee down to 78 and 78.30, going forward. The bias is negative to see the rupee break and fall below 77.80 in the coming days.

Published on May 28, 2022
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