The dollar index witnessed a sharp fall last week. Delay in levying new tariffs, increased optimism on Russia-Ukraine peace talks overshadowed the positive impact of high inflation on the greenback last week.
The US Headline Consumer Price Index (CPI) rose by 3 per cent in January, up from 2.87 per cent in December last year. The Core CPI rose by 3.29 per cent in January, up from 3.21 per cent a month ago.
Dollar outlook
The near-term picture is weak for the dollar index (106.71). Resistances are at 107.30 and then at 107.80-108. The index can fall to 106 and even 105 from here.
The region around 105 is a strong support which can halt the fall. We expect the dollar index to reverse higher again from around 105 and rise back to 108-110 again over the medium term.
Range-bound
The euro (EURUSD: 1.0492) has risen well within its range. The currency has been oscillating between 1.02 and 1.0550 over the last few weeks. A break above 1.0550 and a subsequent rise above 1.0650 is needed to turn the short-term outlook bullish. Only then, a rise to 1.08 will come into the picture.
Failure to rise above 1.0550 can take the euro down to 1.04-1.02 again. In that case, the range will continue to remain intact for some more time.
Further fall
The US 10Yr Treasury Yield (4.48 per cent) spiked to 4.65 per cent after the inflation data release. But it failed to sustain higher and fell sharply giving back all the gains. A test of 4.4-4.35 per cent is likely this week. A break below 4.35 per cent can drag it down to 4.25 per cent, a very important support level. A bounce from this support can take the US 10Yr Yield up to 4.5-4.6 per cent again.
Strong recovery
The Indian Rupee (USDINR: 86.83) opened the week with a wide gap-down at 87.92. It touched a new low of 87.95 and then witnessed a strong recovery on a possible intervention from the central bank.
The rupee rose to a high of 86.45 and then reversed lower again to close the week at 86.83. In the off-shore market, the rupee closed slightly higher at 86.62.
We can expect the rupee to remain in a range of 86.50-87.00 for some time. A break above 86.50 can take it up to 86.30. On the other hand, a break below 87 can drag it down to 87.50-88 again.
From a big picture, the region around 86 is a strong resistance for the rupee. So, a rise above 86 might need some strong trigger. That looks less likely. So, we can expect the rupee to stay below 86. There is room for the domestic currency to see a fall to 88-89 in the coming months. However, the pace of fall in the leg of fall could be slow considering the presence of the central bank in the market.
Take a breather
Rupee can remain stable and range-bound between 86.50 and 87 for some time
