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It was an action-packed week on the global currency market. The US dollar index surged to another 20-year high of 114.78, the British Pound and the Indian Rupee tumbled to a new low against the greenback and the Chinese Yuan fell to a 14-year low versus the US dollar. The hawkish stance of the US Federal Reserve is continuing to weigh on the market. The US Treasury yields continue to surge on the back of this and in turn the dollar is retaining its strength.
However, the dollar index has come-off sharply in the second half of the week giving back all the gains. It has closed the week at 112.12, down 0.95 per cent.
Watch the support
The resistance at 114 on the US dollar index (112.12) mentioned last week is holding well. The index has failed to get a strong follow-through rise above that and has come-off from the high of 114.78.
An important support is at 111.50. If the dollar index manages to sustain above this support and bounces back, a rise to revisit 114 and 115 levels is possible in the near term.
But a decisive break below 111.50 will bring the index under more pressure. Such a break can drag it down to 110-109. So the price action around 111.50 will need a close watch this week.
Corrective bounce possible
The Euro (EURUSD: 0.9802) tumbled to a low of 0.9536 and has risen back sharply from there. The 0.96-0.95 support zone that we have been mentioning for some time has held very well in line with our expectation.
Immediate support is at 0.97. If the euro manages to sustain above 0.97, a corrective bounce to 1.00 and even 1.02 is possible in the near term.
The euro will have to fall below 0.95 to come under renewed pressure.
Can fall more
The US 10Yr Treasury yield (3.83 per cent) extended the rally well beyond our expected 3.9 per cent level last week. It made a high of 4.01 per cent and has come off sharply from there.
Support is at 3.65 per cent which can be tested this week if the yield fails to bounce back immediately on Monday. Inability to break below 3.65 per cent can take it up towards 4 per cent again. But a break below 3.65 per cent will indicate a top in place. In that case, the 10Yr Treasury yield can fall to 3.45-3.4 per cent and even lower.
Key resistance to watch now is the 4-4.1 per cent region. A strong rise past 4.1 per cent will be needed for the yield to move further up towards 4.35 and 4.5 per cent.
Vulnerable to fall
The Indian Rupee (USDINR: 81.35) remained well below 81 all through the week. The domestic currency made a new low of 81.95 and has recovered slightly from there. It has closed at 81.35 in the onshore market and much lower at 81.50 in the offshore segment.
An important resistance is at 81.25. The rupee has to surpass this hurdle to get some breather. A break above 81.25 and a subsequent rise past 81 can take the rupee up to 80.50 and 80.30 in the near term.
On the other hand, as long as the rupee remains below 81.25, the overall bearish view will remain intact. In that case, the rupee will remain vulnerable to weaken towards 82.25-82.50 and even lower in the coming weeks.
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