Last week, the growth of the US dollar index accelerated. The index rose sharply, breaking the key resistance level of 94. Strong growth in Treasury yields pushed up the dollar index. The rise in the dollar index led to a sharp decline in the euro, which fell below the critical support level of 1.1680 and tested the low of 1.1563 by the end of the week. The euro closed at 1.1594 on Friday, down 1.06% over the week. The dollar index closed at 94.07, having increased by 0.85% over the week.
Dollar Index: Support Ahead
The US dollar index (94.07) rose to a high of 94.50 on Thursday and retreated from there. However, important support lies at 93.80. A bounce off this support could push the index back to 94.50. In addition, as long as the index holds above 93.80, the outlook will remain optimistic, and there is a chance of a break above 94.50 and a rise to 95 and even higher levels.
The index should break below 93.80 to be under pressure to drop to 93 in the near term. However, when viewed as a whole, the dollar index will now have to decisively fall below 93 to reverse the forecast completely. The trend will be upward and the odds of seeing 95 will be possible as long as the dollar index is trading above 93.
US nonfarm payrolls (NFP) and unemployment data are the only important data due Friday weekend.
Euro (1.1563) fell to 1.16, as expected. However, the rate of decline and expansion beyond 1.16 to a low of 1.1563 came as a surprise. The sharp drop below the key support at 1.1680 reinforced the bearish sentiment for the euro. The area between 1.1680-1.17 could be good resistance this week. In the near future, the euro may fall to 1.1520-1.15. After that, a short-term rebound to 1.16–1.1650 cannot be ruled out. In general, the euro will now have to break through the 1.18 level to ease the downward pressure and continue its upward movement. As long as the currency is trading below 1.18, the overall outlook remains bearish. Thus, in the coming months, a break below 1.15 and a prolonged fall to 1.14 and even lower levels cannot be ruled out.
The euro’s bearish sentiment suggests that the dollar index may well stay above 93 and rise to 95 or even higher in the coming months.
Yields are receding
The yield on 10-year US Treasuries (1.46%) rose above the key 1.5% resistance level earlier last week. However, it failed to hold higher and fell below 1.5% again after testing the 1.56% high. The most important resistance turned into support is located near the current 1.45% levels. The 10-year yield would need to dip below it to confirm the reversal. Such a breakout could again push the yield on 10-year US bonds down to 1.4-1.3%. On the other hand, if the yield manages to stay above 1.45 percent and again exceed 1.5 percent, then a new rise to 1.6 percent is possible. The 1.6% level is a decisive resistance to watch for gains.
The rupee is weakening
The Indian rupee fell sharply last week, breaking the 73.60-73.80 range. The national currency fell sharply to a low of 74.35 on Thursday. However, on Friday, it managed to recover and close the week at 74.1250, down 0.6% over the week. Immediate resistance is at 73.95, which could limit the upside potential of the rupee this week. The rupee may turn down again from the 74.00-73.95 area and fall to 74.50-74.60 in the short term. Resistance above 73.95 lies at 73.80-73.75.
The Indian rupee will need to break below 73.75 to ease downside pressure and rise back to 73.50. But given the euro’s weakness, which could push the dollar index to 95 and higher levels, the chances of the rupee strengthening above 73.75 are less likely. Thus, the upside potential of the Indian rupee is likely to be limited and we can expect the currency to weaken to 74.50 and even lower in the coming weeks.
The decision on the monetary policy of the Reserve Bank of India will be made on Friday.