The Indian rupee broke a key resistance and rose sharply against the dollar last week. The domestic currency surged, breaking the important hurdle at 86.75 and surged over a per cent last week. Rupee touched a high of 85.92 before closing the week at 85.98 against the dollar.
More rise
Rupee’s (USDINR: 85.98) strong rise above 86.75 last week confirms an inverted head and shoulder reversal pattern on the chart. That leaves the outlook bullish. Rupee can strengthen further towards 85.80-85.75 this week. If it manages to break 85.75, then a further rise to 85.65-85.60 is also possible.
In case the rupee turns down from 85.75, then it can fall back to 86-86.20 again.
Non-event
The US Federal Reserve meeting outcome failed to give a boost for the green back. It largely turned out to be a non-event. The Fed kept the rates unchanged at 4.25-4.5 per cent.
Although the inflation forecast was revised higher, it failed to trigger a strong rise in the Treasury yields and the dollar. The Personal Consumption Expenditure (PCE), the Fed’s inflation gauge is projected to be at 2.7 per cent this year. In December the central bank had projected it to be at 2.5 per cent.
Stable, lower
The dollar index (104.09) remained stable and lower last week. The index is getting support around 103.20. That leaves the chances high to see a corrective bounce to 105-105.50 in the near term.
However, after this rise, the index can turn down again and resume the downtrend. That leg of fall may drag the dollar index down to 102-101 and even 100 over the medium term.
Range-bound
The US 10Yr Treasury Yield (4.25 per cent) is stuck between 4.1 and 4.35 per cent over the last three weeks. That leaves the near-term outlook unclear. However, the broader trend remains down. Strong resistance is at 4.45-4.5 per cent which can cap the upside if the yield breaks above 4.35 per cent.
As long as the stays below 4.5 per cent, the bias is bearish to see a fall to 4 per cent and even 3.8 per cent in the coming weeks.
Limited downside
The euro (EURUSD: 1.0818) has come down failing to break above 1.0950. An immediate support is at 1.08. If the euro breaks below it, a fall to 1.0730-1.0700 can be seen. We expect the euro to reverse higher again either from 1.08 itself or from around 1.07. That bounce will keep the broader bullish view intact. It will then take the euro up to 1.10 initially. A break above 1.10 will then see an extended rise to 1.11-1.12.
More strength
Rupee has room to strengthen further towards 85.75 and 85.60
