The rise to 107.50 in the US dollar index has happened much faster than we had expected. The US dollar index surged to a high of 107.78 on Friday before closing the week at 107, up 1.8 per cent. The strength in the greenback dragged the euro and the Indian rupee sharply lower last week. The euro tumbled to a low of 1.0070 on Friday and then managed to bounce from there to close the week at 1.0183. to a low of 1.0070 on Friday, down 2.2 per cent. On the domestic front, the Indian rupee fell to a new low of 79.41 and has closed at 79.25, down 0.26 per cent for the week.
Overall, the strength in the greenback has gained momentum. The bigger picture remains bullish, and the dollar index has room to rise further in the coming weeks.
Dollar Index: Resistance ahead
The uptrend in the US dollar index (107) is strong. However, there is an immediate resistance in the 107.50-108 region which has held very well on Friday. The index has come-off from the high of 107.78. Support is at 106.50. This can be tested this week. If the dollar index manages to sustain above 106.50, a range of 106.50-108 can be seen for a week or two before a fresh rally happens.
On the other hand, if the dollar index breaks below 106.50, it can fall further towards 106 or 105.50 and not more than that.
From a bigger picture perspective, there is room for the dollar index to surge towards 110 and 114 in the coming months.
The three-week consolidation between 1.0350 and 1.06 on the euro (EURUSD: 1.0183) has come to an end. As expected, the euro broke the range and tumbled below 1.0350 to test 1.02 in line with our expectation.
The outlook is bearish. Any intermediate bounce can face resistance in the 1.0300-1.0350 region. Euro can fall to 0.9950. Thereafter a bounce to 1.02-1.03 is possible.
Treasury Yields: Regains momentum
The US Treasury yields have seen a strong recovery in the second half of the week. The US 10Yr (3.08 per cent) extended the fall as expected. It made a low of 2.74 per cent and then had bounced back sharply to close the week higher at 3.08 per cent. The corrective fall seems to have ended. Support will now be at 2.9 per cent. As long as the yield sustains above this support, the outlook will now be bullish to revisit 3.2 per cent and even higher levels in the coming weeks.
The US Consumer Price Index (CPI) data release is due this week on Wednesday. It will have to be seen if the inflation is showing any sign of cooling off. The CPI data can cause some volatility in the yield movement.
Rupee: More weakness ahead
The Indian Rupee (USDINR: 79.25) fell to a new low of 79.41 last week. The outlook continues to remain bearish. Strong resistance is at 79 and 78.75. A sustained break below 79.40 will drag the rupee down to 80 and 80.50 in the coming weeks. The next strong support is at 80.50. We can expect the rupee to see some recovery from 80.50.