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The rise in the US Dollar index continues. The index surged breaking above the crucial resistance level of 102.5 and made a high of 103.93 last week. It has come-off from there to close the week at 103.21, up 1.97 per cent for the week. The strong rise in the greenback dragged all the major currencies lower. The euro tumbled breaking below the crucial support level of 1.08 and made a low of 1.0472. The currency recovered from this low on Friday to close the week at 1.0545, down 2.15 per cent for the week. The British Pound slumped 3 per cent intraweek to make a low of 1.2411 before recovering from there to close at 1.2553, down 2 per cent for the week. The Japanese Yen fell to a low of 131.25, but then had managed to recover well on Friday to close at 129.55 against the dollar.
Interestingly, the Indian rupee has managed to stay afloat amid the strong rise in the dollar last week. The domestic currency was stuck in a narrow range between 76.29 and 76.77 all through the week. It has closed on a flat note at 76.43.
Watch the Fed
The US Federal Reserve meeting outcome is due on Wednesday. It could be a major factor that could decide whether the dollar index will sustain above 102.50 or not.
Market is expecting a 50-basis points (bps) rate hike in this meeting. The Federal Reserve Chairman Jerome Powell and many other Fed members have also hinted for a 50-bps rate hike possibility. Broadly, the 50-bps rate increase is largely factored in the market. So, the tone of the central bank for its future rate hikes will be key to watch.
Following the central bank meeting, the US job numbers on Friday is the next important data release to watch this week.
Dollar index: Need to sustain above 102.5
The dollar index (103.21) has closed well above the crucial resistance level of 102.5. It will have to be seen if it can sustain above 102.5 or not. As long as the index trades above 102.5, the chances are high for it to rise towards 106 in the next two-three weeks. It will also keep the broader bullish view intact and increase the chances of seeing 109-110 on the upside over the medium term.
On the other hand, a fall below 102.5 can drag it down to 101 and 100 in the near term. A decisive break below 100 will turn the outlook bearish and indicate a trend reversal. The price action this week will need a close watch.
Euro: At a crucial juncture
The euro (EURUSD: 1.0545) has a very important support in the broad 1.05-1.04 region. It will have to sustain above 1.04 to avoid a further steeper fall. A strong bounce from here in the coming days can trigger a corrective rally to 1.08 in the coming weeks. But if euro breaks below 1.04, it can fall to 1.02 and even 1, going forward.
Treasury yields: Bullish
The US 10Yr Treasury Yield (2.93 per cent) fell to 2.71 per cent during the week and has risen back sharply. This has increased the chances of breaking above the crucial level of 3 per cent. Such a break will open doors for a fresh rise to 3.2-3.4 per cent in the coming weeks. Key supports are at 2.7 per cent and 2.6 per cent.
Rupee: Range bound
The Indian rupee (USDINR: 76.43) has a key resistance immediately at 76.4 and then at 76.25. Broadly, 76.40-76.80 (narrow) or 76.25-76.80 can be the trading range for some time. A breakout on either side of 76.25 or 76.80 will give a clear cue on the next move. It is a wait-and-watch situation for now.
A break below 76.80 can take the rupee lower to 77 and 77.20. On the other hand, a rise past 76.25 will see the rupee strengthening towards 76 and 75.75 against the dollar.
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