Currency Outlook: Dolllar Has More Room to Rise

The dollar index sustained higher, but remained stable last week. The US 10Yr Treasury yield, on the other hand, has moved up further. The impact of the US inflation data released earlier this month continues to give support for the dollar and the Treasury yields. There is an increased noise in the market that the US Federal Reserve might not begin to cut rates this year and could push it to next year. Indeed, there are also talks about the chances of interest rate hikes again if the inflation stays higher. Overall, the market sentiment is now in support of the dollar. 

Data watch

The US Personal Consumption Expenditure (PCE), the Fed’s inflation gauge, data release is due on Friday. If that comes higher, then that could be a boost for the dollar and the Treasury yields. This data will be very important to watch this week.

Bullish view intact

The dollar index (106.15) remained stable, and range bound between 105.74 and 106.52. The bullish view remains intact. Supports are at 105.50, 105.30 and 105. Immediate resistance is at 106.50. A break above it can take the index up to 107-107.50. As mentioned last week, the price action thereafter will need a close watch. A reversal from the 107-107.50 zone can drag the index down to 106-105.

To negate the rise to 107-107.50, the index has to sustain below 106.50 and break below 105. If that happens, a fall to 104 can be seen.

Supports available

The US 10Yr Treasury yield (4.62 per cent) broke above the 4.65 per cent resistance, but failed to sustain above it. Although the yield fell sharply to a low of 4.49 per cent from the high of 4.69 per cent, it has managed to rise back sharply. That leaves the bias positive

Support is at 4.5-4.48 per cent, which is holding well for now. Resistance is around 4.65 per cent. A sustained break above it can take the yield up to 4.75-4.85 per cent this week. The yield has to break below 4.48 per cent and then see a subsequent fall below 4.4 per cent to become bearish. Only in that case, a fall to 4.3 per cent and lower levels can be seen.

Resistance ahead

As expected, the support at 1.06 held on its first test. The euro (EURUSD: 1.0656) touched a low of 1.0601 and then has bounced back from there. However, this bounce-back move seems to lack strength. Resistance is in the 1.07-1.0720 region. As long as the euro stays below 1.0720, the outlook will be negative. As such, the chances are high for the euro to break 1.0600 and fall to 1.05-1.0450.

Rupee watch

The support at 83.55 has held well and the rupee can move up to 83.10 on a break above 83.30

Support holds

The Indian Rupee (USDINR: 83.47) tested the crucial support level of 83.55 last week. It touched a low of 83.57 and then has recovered from there. The domestic currency has closed at 83.47 in the onshore segment. In the offshore markets, the rupee has closed much higher at 83.36.

Immediate resistance is at 83.30. A break above it can take the rupee up to 83.10 this week.

On the other hand, a decisive break below 83.55 will be bearish. In that case, a fall to 83.75 can be seen in the near term.


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