Currency Outlook: How High Can The US 10Yr Treasury Yield Go?

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The US 10Yr Treasury yield continued to surge for the fifth consecutive week. Expectation that the interest rates would stay higher for a long time is pushing the yields higher. The US 10Yr yield surged to a high of 4.88 per cent before closing the week at 4.8 per cent. However, the dollar index had come down from its high of 107.35 to close the week at 106.04, thereby snapping its 11-week rally. The spike to 107 after the strong jobs data release on Friday did not sustain. The US non-farm payroll increased by 336,000 in September, much higher than the market expectation for an increase by 170,000.

Yield outlook

The strong break and a decisive close above 4.65 per cent is a positive. The outlook is bullish for the US 10Yr (4.8 per cent) yield. The 4.65-4.6 per cent region will now act as a good support. As long as the US 10Yr Treasury yield stays above 4.6 per cent, the chances are high for it to test 4.95-5 per cent on the upside first. A break above 5 per cent can take the US 10Yr Treasury yield further higher towards 5.1-5.2 per cent eventually in the coming weeks.

The yield will come under pressure for a fall to 4.5 per cent and lower only if it declines below 4.6 per cent. As seen from the daily chart, the 10Yr yield is currently facing resistance at 4.88 per cent. So a dip to test the 4.65-4.6 per cent region is a possibility first, before the rise to 5 per cent and higher levels happen.

Dollar outlook

The US dollar index (106.04) is poised at a crucial level now. A very important support is at 105.90. A break below it can trigger a corrective fall to 105 and even 104. On the other hand, a bounce from the current levels and a subsequent rise past 106.50 will keep the overall bullish view intact to see 107.50-108 on the upside. The price action in the initial part of the week will need a close watch to see if the index is bouncing back or not.

Euro outlook

The corrective rise to 1.06-1.07 mentioned last week is happening on the euro (EURUSD: 1.0586). A further rise to 1.0650-1.07 is possible. But thereafter we can expect the euro to reverse lower and resume the downtrend towards 1.05 and 1.04 again. A decisive rise past 1.07 is needed to indicate a trend reversal and turn the outlook bullish to see 1.08 and higher levels.

Rupee watch

Rupee can remain stuck inside the broad 82.90-83.30 range for some time

Rupee outlook

The Indian Rupee (USDINR: 83.25) was stuck in a narrow range of 83.17-83.27 all through last week.  The outlook is unclear. Resistances are at 83.10 and 82.90. Support is in the 83.25-83.30 region. So, 83.10-83.30 or 82.90-83.30 can be the trading range for some time.

A breakout on either side of 82.90 or 83.30 will determine the next move. A break above 82.90 can take the rupee up to 82.60-82.50. But a break below 83.30 will be bearish to see 83.60-83.70 and even lower levels.