The US dollar has risen well for the second consecutive week. The price action on the charts indicates that the greenback is gaining strength. The dollar index has broken the 101-103 range on the upside. It has closed the week at 103.20. A sharp rise in the Treasury yields has supported the dollar index to rise last week.
A few of the Federal Reserve members commented that the current situation still does not warrant for pausing the interest rate hike. However, on Friday, the Fed Chairman Jerome Powell in a speech had hinted for the rate hikes to pause soon. So, with these mixed views, the outcome of the next Fed meeting on June 14 will be very interesting and important to watch. The central bank’s economic projections will also be released in that meeting.
The dollar index (103.20) has seen a bullish breakout above 103 now. Immediate support will now be at 103. Below that, 102.50-102 will be the next strong support zone. As long as the index sustains above 102, the outlook is bullish. The dollar index can rise to 105 in the coming weeks.
The index has to fall below 102 to negate this bullish view. But as seen from the charts, such a fall looks less probable.
The US 10Yr Treasury yield (3.67 per cent) has also risen well. The outlook is bullish. The 10Yr yield can rise to 3.9-4 per cent in the next couple of weeks. Strong support is in the 3.6-3.55 per cent region. The yield has to decline below 3.5 per cent to turn negative. Only in that case, it will come under pressure for a fall again to 3.3 per cent and lower.
The fall to 1.08-1.0780 on euro (EURUSD: 1.0805) mentioned last week happened as expected. Indeed, the currency fell beyond 1.0780 to make a low of 1.0760. Although it has bounced back from this low, the overall picture is still weak. Strong resistance is in the 1.0880-1.09. It can cap the upside if the euro moves up from here.
The overall outlook is bearish. The euro can fall to 1.07 – the next crucial support level. A bounce from around 1.07 can give a relief rally for the currency towards 1.08-1.09. But a break below 1.07 will increase the selling pressure. In that case, euro can fall to 1.0550-1.05. So the price action around 1.07 will need a close watch this week.
The Indian Rupee (USDINR: 82.67) weakened towards 82.70 last week in line with our expectation. The domestic currency made a low of 82.79 and has closed at 82.67 in the onshore market. However, in the offshore segment, the rupee extended the fall upto 82.93 and has closed at 82.88.
Crucial supports are at 83 and 83.20. These can be tested this week. If the rupee manages to recover from 83 or 83.20, it can give some relief. In that case, the domestic currency can move up towards 82 again. But a break below 83.20 will be very bearish. Such a break can drag the rupee to 84-84.20 in the coming weeks.
For now, we can allow for a fall up to 83 or 83.20. Thereafter, the price action can be watched closely to get a cue on the next move.