The US dollar continues to trade strong. The US dollar index has risen for the second consecutive week and is retaining its strength. The index fell to a low of 107.59 on Friday and then recovered sharply after the US Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole symposium. The index has closed at 108.83, up 0.6 per cent for the week.

Fight inflation

The Fed Chairman Powell on Friday reiterated that the central bank would continue to raise the interest rates that could cause some pain to the economy. Market was widely expecting Powell to be less hawkish. But the tone of Powell reinstated their aggressive stance to bring down the inflation. That, in turn, took the risky assets such as the equities spiralling down and the greenback up.

The US Federal Reserve’s next policy meeting is on September 21. The outcome of Powell’s speech on Friday has left the doors open for another 75-basis points (bps) hike. If the data release in the coming weeks turns out to be better, then that can very well justify a 75-bps hike next month.

Under this circumstance, the US non-farm payroll and the unemployment rate data release this week on Friday is very important to watch. Apart from this, the consumer confidence on Tuesday and Manufacturing Purchasing Managers’ Index on Thursday are other important data releases to watch this week.

Dollar index: Bullish

The outlook remains bullish. Immediate resistance is at 109.30. A strong break above it will pave way for a fresh rise to 112 in the next few weeks. Strong supports are at 107 and 106. As long as the index trades above these supports, the overall uptrend will remain intact.

From a bigger picture perspective, the dollar index has the potential to target 114 on the upside. Thereafter, a fresh fall is possible.

Euro: Bearish

The Euro (EURUSD: 0.9961) fell below parity in line with our expectation. A low of 0.9899 was made last week. The trend is down, and the overall outlook remains bearish.

Resistance is at 1.0150. Any intermediate bounce can be capped at this resistance. Support is at 0.9890. The chances are high for the euro to break this support. Such a break can drag it down to 0.9780 initially. From there a short-lived corrective rally to 1.00-1.10 is a possibility.

However, the bigger picture will continue to remain negative. The euro can test 0.96-0.95 on the downside from a medium-term perspective.

Treasury yield: Has room to rise

The US 10Yr Treasury yield (3.04 per cent) rose to test the intermediate resistance at 3.1 per cent last week. The outlook remains bullish. Support is at 2.95 per cent. As long as the 10Yr yield trades above this support, the chances are high for it to break above 3.1 per cent. Such a break can take the yield up to 3.4-3.5 per cent in the coming weeks.

Rupee watch
Rupee is likely to break 80.10 and fall to 81. This fall could be swift
Rupee: Bearish

The Indian Rupee (USDINR: 79.87) was stuck in a narrow range of 79.80-79.94. The price action last week clearly indicates the presence of the central bank in the market and avoiding a fall below 80.

However, on the charts the outlook remains weak for the rupee. Support will be in the 80.00-80.10 region. A break below 80.10 can drag the Indian rupee down to 81 in the coming weeks. This fall below 80.10 can be swift.

Resistance for the rupee is at 79.80 and 79.50. The rupee has to rise past 79.50 to get a breather and strengthen against the US dollar. But that looks unlikely considering the strength in the US dollar index.

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