Currency Outlook: US Treasury Yields Surge

The US Treasury yields witnessed a strong rise last week. The US inflation data coming in higher than the market expectation aided the yields to rise last week. The US Headline Consumer Price Index (CPI) inflation rose 0.31 per cent (month on month) in January. This was higher than the 0.23 per cent rise seen a month ago. Hotter-than-expected inflation number increased the hopes in the market that the US Federal Reserve will not be in a hurry to begin cutting the rates. That, in turn, took the US Treasury yields higher.

Yields: Bullish

The US 10Yr Treasury yield (4.28 per cent) has risen well above the key resistance level of 4.2 per cent. Immediate resistance is at 4.35 per cent. A break above it can take the 10Yr Treasury yield up to 4.45-4.5 per cent in the coming week.

Key support is in the 4.12-4.10 per cent region. The outlook will turn negative only if the yield declines below 4.1 per cent. In that case, the 10Yr yield can fall to 4 per cent and lower again.

For now, on the charts, the picture is positive. So we can expect the yield to sustain above 4.1 per cent and rise to 4.5 per cent in the coming days.

Dollar outlook

The dollar index (104.27) rose to a high of 104.98 and then has come down slightly towards the end of the week. The immediate outlook is unclear. Support is in the 104-103.9 region. Resistance is at 105. A breakout on either side of these two levels will determine the next move.

A break below 103.90 can take the dollar index down to 103-102.50. On the other hand, a break above 105 will see the dollar index up to 106.

Euro: Bearish

The euro (EURUSD: 1.0777) has risen back well from the low of 1.0695. Cluster of resistances are there in the broad 1.08-1.09 region. So, the euro has to breach 1.09 to become convincingly bullish. Only in that case, the picture will turn positive for a rise to 1.10-1.11 and higher levels.

As long as the euro remains below the 1.08-1.09 resistance zone, the view is bearish to break 1.07 going forward. Such a break can drag the euro down to 1.06 in the short term.

Rupee: Range bound

The Indian rupee (USDINR: 83.02) has been stuck in a narrow range of 82.90-83.10 over the last couple of weeks. This range is likely to remain intact for some time. A breakout on either side of this range will determine the next move.

A break above 82.90, can see the rupee strengthening towards 82.70. On the other hand, a break below 83.10 can drag the rupee down to 83.30 and even 83.50 in the coming weeks.