The US Dollar Index saw a sharp rise in the past week in line with our expectation. High risk aversion in the market after Russia’s attack on Ukraine triggered this rise in the greenback. The dollar index surged to a high 97.74 and came off rom there to close the week at 96.54. The strength in the dollar index dragged the euro and the Indian rupee sharply lower. The euro tumbled to a low of 1.1106 and has bounced-back from there to close the week at 1.1267, down 0.47 per cent. On the domestic front, the rupee declined sharply to a low of 75.66 on Thursday. However, it had recovered some of the loss on Friday and closed at 75.2950, down 0.84 per cent.

Dollar: Bullish

The support at 95.50 continued to hold well in line with our expectation last week. As anticipated, the index broke above 97 and surged to a high of 97.74. There is a chance to see a dip in the near term. But that is likely to be short-lived and limited to 96.50 or 96.20. As long as the index trades above 96.20, the short-term outlook is bullish to break above 98 and rise to 98.30-98.50. A strong break above 98.50 will open doors for a further rise to 99 eventually. This will also keep our medium-term bullish outlook intact to see 100 on the upside. The dollar index will have to fall below 95 to negate the break above 98. But that looks less probable as seen from the price action on the charts.

Euro: Resistance ahead

The euro (EURUSD: 1.1267) fell to test 1.11 on Thursday and has risen back from there. However, strong resistance is in the 1.1270-1.13 region. Inability to break 1.13 can drag the currency lower to 1.11 again. In that case the euro will continue to remain under pressure to break 1.11 and see a steeper fall to 1.10 and even 1.08 in the coming weeks. On the other hand, if the euro manages to break above 1.13 decisively, though less likely, it can see 1.14 and 1.15 on the upside, going forward. In that case, the euro can remain in a broad range of 1.11-1.15 for some time. The price action around 1.13 will need a close watch in the coming days.

Yields: Can rise further

The US treasury yields fell sharply on Thursday after Russia’s attack on Ukraine. The US 10Yr Treasury yield (1.97 per cent) broke below the key support level of 1.9 per cent and fell to a low of 1.84 per cent. However, it managed to rise back, recovering all the loss and close on a strong note on Friday at 1.97 per cent. The bullish view of seeing 2.1-2.2 per cent on the upside remains intact and it is more likely to happen well ahead of the next US Federal Reserve meeting, which s scheduled to be held on March 15 and 16.

The US Personal Consumption Expenditure (PCE), the inflation gauge that the Fed closely monitors, had surged to 5.21 per cent (year-on-year) in January. This has strengthened the case for a rate hike next month. Market is expecting a 50-basis point hike in the March meeting. But on the back of the ongoing Russia-Ukraine tussle, it will be interesting to see what the Fed has on its plate for the market.

For the coming week, the Institute of Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) data on Tuesday and the job numbers on Friday are key releases to watch this week.

Rupee: Bearish

The resistance on the Indian rupee (USDINR: 75.2950) at 74.40 mentioned last week has held very well. The rupee made a high of 74.35 on Monday but failed to sustain higher. It declined sharply following the strong sell-off in the equity markets on Thursday and tumbled to a low of 75.66 on Thursday. Though the rupee managed to recover on Friday, the overall picture continues to remain weak.

The rupee has been range-bound between 74.35and 75.70 over the last five weeks. The bias is bearish to see a downside break of this range below 75.70 if not immediately, but eventually, which will pave the way for further weakness in the rupee.

For the coming week, immediate resistance is at 75. A break above it can take the currency up to 74.50 again. In that case the sideways range will remain intact for some more time. On the other hand, if the rupee fails to break above 74.50, the chances are high for it to break 75.70 and weaken to 76 initially and then to 76.30-76.40 eventually in the short term.

Rupee watch
The rupee is likely to break below 75.70 and fall to 76 initially and then to 76.30-76.40 eventually in the short term
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