Currency Outlook: Dollar: More Room for Weakness

The dollar index and the US Treasury yields have come down sharply over the last few weeks. The dollar index has declined from around 107 to 103.27 now. The US 10Yr Treasury yield has fallen sharply from around 5 per cent to 4.19 per cent now. Easing inflation numbers, increasing hopes that the interest rates in the US have reached the peak, speculation in the market about the US Federal Reserve to begin the interest rate cut cycle are all weighing on the green back and the treasury yields.

The next Fed meeting outcome will be on December 13. Market expects the central bank to keep the interest rate unchanged. However, as per the forecast from the Fed released in September, there is room to increase the interest rates by another 25 basis points. So, we will have to wait and watch.

Dollar outlook

The short-term trend for the dollar index (103.27) is down and is intact. Resistance is at 104. The index can fall to 102-101.50 over the next couple of weeks or so. The price action, thereafter, will need a close watch.

A bounce from the 102-101.50 can see the dollar index rising back towards 104. But a break below 101.50 will increase the downside pressure. Such a break can drag the index down to 100.

Room to fall

The US 10Yr Treasury yield (4.19 per cent) has declined below the key support levels of 4.3-4.2 per cent. The outlook is bearish. Resistance will now be around 4.35 per cent. As long as the yield stays below this resistance, there is room for further fall towards 4.1 per cent and 4 per cent this week.

A strong bounce from around 4 per cent can take the yield up to 4.4-4.5 per cent again. If this bounce-back move manages to rise past 4.5 per cent, then that will be very bullish. In that case, the US 10Yr yield can surge back towards 5 per cent.

Supports ahead

The euro (EURUSD: 1.0884) has declined sharply from the high of 1.1017 last week. The currency made a low of 1.0829 and has bounced back from there towards the end of the week. The immediate outlook is weak. There is room to test 1.08 and even 1.07 from here. However, there are cluster of supports in the 1.07-1.08 region. As such, a fall beyond 1.07 looks less likely.

Resistance is in the 1.0900-1.0930 region. A strong rise above 1.0930 will ease the downside pressure and will bring back the bullishness. That will clear the way for the euro to reach 1.10-1.11 on the upside, going forward.

Stuck in range

The Indian rupee (USDINR: 83.29) has been stuck in between 83 and 83.50 over the last two months. The immediate outlook is unclear. This 83-83.50 sideways range can continue to remain intact. A breakout on either side of 83-83.50 will then determine the next leg of move.

Looking at the long-term picture, the bias remains negative for the rupee to break 83.50 and fall towards 84 and lower, going forward. But when that fall will happen remains a question.