Currency Outlook: Dollar to remain subdued
The dollar index hovered around the crucial support level of 105.50 all through last week. The index declined below this support but did not sustain. The fall after jobs data release on Friday was short-lived. The index touched a low of 105.42 immediately after the data release but then rose back from there to close the week at 106.05.
Job numbers
The US added 227,000 jobs to its nonfarm payroll in the month of November. The payroll number was higher than the market expectation for an addition of 214,000.
The unemployment rate rose to 4.2 per cent in November from 4.1 per cent a month ago. This data will need a close watch in the coming months. If this turnaround persists, then there is a danger of the unemployment rate rising further in the coming months.
For now, market expects the US Federal Reserve to cut the interest rates by 25 basis points in its meeting this month on December 18.
Dollar outlook
The dollar index (106.05) is managing to stay above 105.50. The near-term outlook is slightly unclear. A sustained rise above 107 is needed to regain the momentum. If that happens, then the dollar index can breach 108 and rise to 110-111 in a month or two.
In case the index declines below 105.50, it can test 105 initially. A further break below 105 can drag it down to 104. Only a strong fall below 104 will turn the outlook completely bearish.
Weak yields
The US 10Yr Treasury yield (4.15 per cent) is struggling to rise past 4.25 per cent. The near-term picture is weak. The yield can fall to 4.05 per cent or 4 per cent in the coming days. This in turn can keep the dollar index subdued in the near term.
The 10Yr Treasury yield has to rise above 4.25 per cent to clear the way for a rise back to 4.5 per cent.
Room to rise
The euro (EURUSD: 1.0568) is getting support around 1.0470. There are good chances of seeing a rise towards 1.07-1.0720 in the near term. But price action after this rise will need a close watch. Failure to get a strong follow-through rise above 1.0720 can drag the euro lower again. That reversal can take the currency down to 1.05-1.04 again.
Near-term support
The Indian Rupee (USDINR) fell sharply last week following the weak GDP data release. The domestic currency fell to a new low of 84.76 and has recovered slightly from there.
The broader picture is weak. However, near-term support is in the 84.80-84.85 reigon which can limit the downside for now. Rupee might see some recovery towards 84.50. However, a rise beyond 84.50 might be difficult now. Broadly we can look for a range of 84.50-84.85 for some time now.
Eventually we expect the rupee to break 84.85 and fall to 85 and lower in the coming weeks.