Currency Outlook: Dollar Looks to Strengthen Further in the Short Term

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The currency markets remained broadly stable last week. The dollar sustained higher and the US Treasury yields oscillated up and down around 4.2 per cent all through last week.  The euro remained lower and subdued. The Indian rupee attempted to recover but seems to lack strength.

The US Personal Consumption Expenditure (PCE), the Federal Reserve’s inflation gauge data was released on Friday. The US Core PCE came in at 2.78 per cent (year-on-year) for February. It continues to move down. The impact of this data release on the dollar will be seen next week as Friday the markets were closed.

Dollar outlook

On the charts, the near-term outlook remains positive for the dollar index (104.50). The index is getting support from around 104. This keeps the upside open for the dollar index to test 105 and 105.50 in the short term. The chances of the upside extending even up to 106-106.50 cannot be ruled out. The dollar index has to fall below 104 to turn the near-term outlook negative to see 103.50-103 on the downside.

Looking at the long-term picture, 99.50-107 has been the broad trading range for almost a year now. This range is still intact. The chances are now looking high for the dollar to move up within this towards the upper end of the range.

Yields vulnerable

The US 10Yr Treasury yield (4.21 per cent) seems to be struggling to get a sustained rise above 4.25 per cent. So as mentioned last week, the chances are high for the yield to see a fall to 4.1-4 per cent in the near term. For now, 4-4.35 per cent will continue to remain as a possible trading range. A breakout on either side of this range will decide the next move. We will have to wait and watch.

Euro: Crucial support

The fall to 1.0760 mentioned last week happened as expected. The euro (EURUSD: 1.0790) made a low of 1.0767 and has risen back slightly from there. If the bounce sustains, a rise to 1.0830-1.0850 can be seen this week. Failure to rise past 1.0850 can drag the euro down towards 1.0760 again.

A break below 1.0760 will be bearish to see 1.0680 and even 1.06 on the downside, going forward.

Rupee watch

For now, 83.10 to 83.55 can be the possible trading range for some time

Rupee

The Indian rupee (USDINR: 83.40) oscillated up and down last week. It rose to a high of 83.26 initially, but then fell again giving back all the gains. The domestic currency has closed on a flat note at 83.40 in the onshore market. But in the offshore segment, it has closed slightly higher at 83.35.

Immediate resistance is at 83.30. If the rupee manages to break 83.30, it can then recover to 83.20 and 83.10 this week.

As mentioned last week, 83.55 will continue to remain as a crucial support for the rupee. A break below it can drag the currency down to 84 and 84.50 going forward.

For now, 83.10-83.55 looks likely to be a possible trading range for some time.