Currency Outlook: Near-term Outlook Turns Bullish

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The US dollar index and the Treasury yields remained subdued in the first half of the week. Barring a sharp fall in the yields, the outcome of the US Federal Reserve meeting on Wednesday did not have a major impact on the green back. The Fed left the interest rates changed in line with the market expectation. The central bank also ruled out the chances of a rate cut in March contrary to the market expectation. However, the strong jobs report on Friday aided the dollar and the Treasury yield rise back sharply.

The US nonfarm payroll increased by 353,000 as against the market expectation for a rise of 185,000. The unemployment rate was unchanged at 3.7 per cent. The dollar index surged from around 103 to close the week at 103.92. Similarly, the US 10Yr Treasury yield had risen back sharply from a low of 3.81 per cent to close the week at 4.02 per cent.

Dollar: Bullish

The price action on the chart indicates that the dollar index (103.92) is getting good support around 103. This keeps the chances high for the index to break 104 and rise to 105-105.30 in the short term.

Below 103, cluster of supports are there in the 102.50-102 region. So the dollar index has to decline below 102 to become bearish. Only in that case, a fall to 101-100 will come into the picture.

Yields: Mixed

The US 10Yr Treasury (4.02 per cent) has risen back sharply from its low of 3.81 per cent. It is now important to see if can sustain this bounce or note. Resistances are at 4.10 per cent and then at 4.17-4.2 per cent. The yield has to rise past 4.2 per cent to become bullish convincingly. If that happens, then the 10Yr yield can rise to 4.35-4.4 per cent and even higher in the coming days.

On the other hand, if the yield falls back below 4 per cent again, then 3.8-3.7 per cent can be seen on the downside.

Rupee watch

The Indian rupee can rise to 82.80-82.70 if it breaks above 82.90 decisively

Crucial support

The euro (EURUSD: 1.0788) has come down sharply after testing 1.09 on the upside last week. A very crucial support is around 1.0750. If the euro manages to sustain above this support and bounces back, then a rise to 1.09 can happen again. In that case, the euro can remain in a range of 1.0750-1.09.

But a break below 1.0750 will be bearish. Such a break can drag the currency down to 1.06.

Room to strengthen

The Indian rupee (USDINR: 82.92) broke above 82.90 last week and rose to a high of 82.82 last week. However, it has come-off from that high to close the week just below 82.90 in the onshore market. In the offshore segment, the domestic currency has closed at 83.

The Interim Budget on Thursday gave a push for the Indian rupee. Lowering the borrowings and fiscal deficit estimates aided the rupee to move up.

The near-term outlook is mixed. If the rupee remains below 82.90, then it can fall to 83.10-83.20 again this week. On the other hand, a break above 82.90 can take the rupee up to 82.80 and 82.70 in the coming days. We will have to wait and watch.