The dollar index broadly remained in a range all through the week.
Inflation data showing some signs of cooling down kept the greenback subdued. The US Headline Consumer Price Index (CPI) rose at a slower pace by 2.81 per cent (year-on-year) in February, down from a 3 per cent rise seen in January. The Core CPI came in at 3.14 per cent for February, down from 3.29 per cent a month ago. Easing inflation has increased hopes in the market to get more rate cuts from the US Federal Reserve than anticipated.
Dollar outlook
The broader picture remains bearish for the dollar index (103.72). Support is around 103 which is holding for now. There are chances to see a corrective bounce to 104.50-105 in the short term. But rise beyond 105 is unlikely. A reversal from the 104.50-105 region can take the index down to 103 again. An eventual break below 103 will drag the dollar index down to 101-100 in the coming weeks.
A decisive rise above 105 is needed to ease the downside pressure and turn the outlook positive.
Upside capped
The US 10Yr Treasury Yield (4.31 per cent) has been stuck inside 4.1-4.35 per cent over the last couple of weeks. If it manages to breach 4.35 per cent, a rise to 4.5 per cent is possible in the short term. A rise beyond 4.5 per cent may need some strong positive trigger. As long as the yield stays below 4.5 per cent, the trend will be down. So, a reversal from around 4.5 per cent will keep the downside open to see 4 per cent and even 3.8 per cent in the coming weeks.
Dip and bounce
The euro (EURUSD: 1.0879) can see a near-term dip to 1.0780 this week. But after that the currency can resume its uptrend. That leg of rise will have the potential to take the euro up to 1.10. If the currency manages to breach 1.10, an extended rise to 1.11-1.12 is a possibility.
Resistance ahead
The Indian Rupee (USDINR: 87.00) had recovered very well from the low of 87.39 last week. There is room to rise further towards 86.80-86.75 – an important resistance region. Failure to break above 86.75 can take the rupee down to 87.10-87.20 again.
On the other hand, if the domestic currency manages to break above 86,75, it can go up to 86.50-86.35 in the short term.
As mentioned last week, we can look for a sideways consolidation in the rupee for some time now. The trading range could be 86.50-87.50 (narrow) or 86-88 (wide).
Resistance to watch
Rupee has to break the resistance at 86.75 to move up to 86.50-86.35
