Global 360: US dollar gains momentum, gears up for a fresh rally

Gurumurthy K | | Updated on: Jul 02, 2022

With support 103.50 and 103, the index can test 107-107.50 in the short-term

The US dollar index has recovered well last week. Risk-off sentiment in the market keeps the greenback maintain its safe-haven status. The index made a low of 103.67 and rose sharply to close the week on a strong note at 105.12, up 0.92 per cent for the week.

The broader remains up and the dollar is set to strengthen further, going forward. Market is now factoring another 75-basis points rate hike from the US Federal Reserve this month. The next Fed meeting outcome will be on July 27.

For the coming week, only the US Non-Farm Payroll (NFP) and the unemployment rate are the important data to be released on Friday. So, until then the dollar can continue to retain the current momentum and rise further.

Dollar Index: Bullish

The overall uptrend remains intact. The dollar index (105.12) has an immediate support at 103.50. Next strong support is at 103. A break below 103 looks less likely as of now. Resistance is at 105.5 which has been holding well over the last two trading sessions. A sustained break above 105.50 will take the index up to 106-10-106.20 this week. A further break above 106.20 will then pave way for a test of 107-107.50 thereafter.

The medium-term outlook is also bullish with strong support in the broad 103-102 region. As long as the index trades above 102, the chances are high for it to test 110 in the coming months.

Euro: Range bound

The euro (EURUSD: 1.0414) remained under pressure all through the week. The attempts made to break above 1.06 in the initial part of the week failed. The currency made a high of 1.0615 and fell sharply to make a low of 1.0366 by the end of the week.

Broadly, 1.0350-1.06 has been the range of trade over the last three weeks. The bias is negative. We expect the euro to break below 1.0350. Such a break can drag it to 1.02 initially and then to 1.00 eventually in the coming weeks.

A strong break above 1.06, though unlikely, can give a breather for the currency. In that case, a corrective rise to 1.08 is possible.

Rupee watch
The current fall has potential to drag the rupee lower to 80-81

Treasury Yields: Bearish

The US Treasury yields got knocked down badly last week. The US 10Yr yield (2.88 per cent) has declined sharply towards 2.9 per cent in line with our expectation. Indeed, the yield has closed just below 2.9 per cent for the week. Inability to bounce from current levels can keep the yields under pressure. In that case, the 10Yr Treasury yield can extend the fall to 2.7-2.6 per cent in the coming weeks.

The 10Yr will now need to rise past 3 per cent to become bullish again.

Rupee: Targeting 80?

The Indian Rupee (USDINR: 79.04) extended the fall last week. The currency fell sharply breaking below the support level of 78.50. It tumbled to a new low of 79.12 against the US dollar last week.

The overall bearish view remains intact. Immediate resistances are at 79 and 78.90. Slightly steeper support is at 78.60. The chances are high for the rupee to remain below 78.90. The domestic currency can weaken to 79.40-79.50 this week.

As mentioned last week, from a bigger-picture perspective, the current fall in the rupee can target 80-81 on the downside in the coming weeks.

Published on July 02, 2022
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