The weakness in the dollar index persists. This is helping the Indian rupee to stay afloat against the greenback. Surprisingly the dollar remained weak last week in spite of the US Treasury yields moving up. Broadly there is a wide range of trade visible in both the dollar index and the 10Yr Treasury yield. A clear trend will emerge only depending on the direction in which the range break out happens. Until then both the dollar index and the Treasury yield can oscillate inside their range. That in turn, can help the Indian rupee to strengthen further from current levels against the dollar. The bullishness in the Indian equities can also aid the rupee to stay higher.
The dollar index (101.55) fell to test the crucial 101-100.5 support zone as expected. The weekly candles indicate indecisiveness in the market. Support is at 100.50 and resistance is at 103. So, 100.5-103 can be the trading range. A breakout on either side of this range will determine the next move.
A break above 103 can take the index up to 104-105. On the other hand, a break below 100.50 will increase the downside pressure. In that case, the current downtrend can extend up to 98.
The US 10Yr Treasury yield (3.5 per cent) has seen a strong rise last week. But broadly this rise has happened within its 3.25-3.65 per cent range. If the momentum continues, the 10Yr yield can rise further to 3.6-3.65 per cent this week. However, a clear trend will emerge only on a breakout on either side of 3.25 or 3.65 per cent. A break below 3.25 per cent can take the yield down to 3.1-3.05 per cent. A break above 3.65 per cent will be very bullish from a medium-term perspective. Such a break will have the potential to take the US 10Yr Treasury yield up to 4 per cent over the medium term.
The euro (EURUSD: 1.0992) broke above 1.10 last week as expected but did not sustain. The currency made a high of 1.1075 and has come-off from there. The short-term outlook is bullish. Strong support is in the 1.0950-1.0900 region. As long as the euro sustains above 1.09, a rise to 1.11 and even 1.1250 is possible in the coming weeks. Thereafter a pull-back can be seen.
For the euro to come under pressure, a fall below 1.09 is needed. Only in that case, a test of 1.07 and lower levels is possible.
The Indian rupee (USDINR: 81.85) began the week on a weak note. It fell to a low of 82.15 last week but managed to recover well thereafter. The support at 82.25 mentioned last week is holding very well.
Strong supports for this week are at 82.10-82.15 and then at 82.20-82.25. Resistance is at 81.70. The chances are high for the rupee to break 81.70 and strengthen to 81.50-81.45 in the near term. From a slightly bigger picture, the rupee has potential to test even 81.20-81.00 on the upside in the coming weeks.