The dollar index snapped its three-week fall with a 0.94 per cent rise last week. Interestingly the greenback has gained strength in spite of a sharp fall in the US 10Yr Treasury yield. The Treasury yields remained under pressure all through the week. It will be important to see if this divergence between the dollar index and the Treasury yield is going to continue or not.
Data release
The coming week has a couple of key data release on the cards. The European Central Bank’s (ECB) interest rate decision is due on Thursday. This will be followed by the much-watched US job numbers and the unemployment rate data release on Friday. These events could keep the volatility high in the currency market this week.
Dollar outlook
The fall to 105.50-105 mentioned last week did not happen. Instead, the dollar index (107.61) rose back well from the low of 106.12. Although it has eased the downside pressure, the chances of falling back to 105.50-105 cannot ruled out. A strong rise above 108 is needed to completely negate the fall to 105. Only then, the doors will open for the index to revisit 110 levels.
Failure to rise above 108 from here can drag the dollar index down to 107-106 again. So, the price action this week will be important to see if the dollar index is rising above 108 or not.
More fall
The US 10Yr Treasury Yield (4.21 per cent) fell sharply last week. Indeed, it has declined below the key support level of 4.25 per cent which we expected to hold. The region between 4.25 and 4.3 per cent will now be a strong resistance for the 10Yr yield. As long as it trades below 4.3 per cent, the outlook is negative. The 10Yr yield can fall to 4.1 and 4 per cent in the near term.
A strong and sustained rise above 4.3 per cent is needed to ease the downside pressure. Only then the yield can rise to 4.5 per cent again.
Range intact
The euro (EURUSD: 1.0375) came down sharply last week. It has negated the chances of the rise to 1.0650 that we had expected last week.
Broadly, the 1.0170-1.0550 range is intact now. Within the range, the chances are high now for the euro to fall towards 1.03-1.02 in the short term.
We will have to wait for a breakout on either side of 1.0170-1.0550 to get clarity on the next move.
Rupee weakens
The Indian rupee (USDINR: 87.51) has declined below 87 again much quicker than we had expected. Last week, we had said that the rupee can consolidate in the 86.45-87 or 86-87 range for some time before witnessing a fresh fall.
The bearish view is intact. Key resistances are at 87.25 and 87. The chances are looking high for the rupee to test 88 on the downside. It will be important to see if the central bank is allowing the rupee to decline below 88 this time or not.
If the central bank intervenes, then the rupee can recover back to 86.50 and 86.20 again. In that case, 86-88 can be the broad trading range for the rupee for some time.
On the other hand, if the rupee breaks below 88 and sustains, then a fall to 88.50-89 can be seen.
Falling back
Rupee can weaken further to revisit the previous lows