US Dollar Gains Strength, Dollar Index Breaks Key Range at 103.20

The US dollar rose nicely for the second week in a row. The price action on the charts indicates that the dollar is gaining strength. The dollar index broke the 101-103 range to the upside. It closed the week at 103.20. Support for the sharp rise in Treasury yields Dollar index on the rise last week.

A few Fed members commented that the current situation still does not justify a pause in rate hikes. However, on Friday, Federal Reserve Chairman Jerome Powell hinted in a speech that rate hikes will stop soon. So, given these conflicting opinions, the outcome of the next Fed meeting on June 14th will be very interesting and important to watch. The central bank’s economic forecasts will also be announced at that meeting.

The bullish breakout

The Dollar Index (103.20) has seen a break-up above 103 now. Immediate support would now be at 103. Below that, the next strong support area would be 102.50-102. As long as the index stabilizes above 102, the outlook is bullish. The dollar index could rise to 105 in the coming weeks.

The index must drop below 102 to cancel this bullish trend. But as can be seen from the graphs, such a fall seems less likely.

More height

The 10-year US Treasury yield (3.67 percent) also rose nicely. The outlook is bullish. The 10-year yield could rise to 3.9-4 percent in the next two weeks. Strong support is found in the region of 3.6-3.55 percent. The yield must fall below 3.5 percent to become negative. Only in this case, it will come under pressure to fall again to 3.3 percent and lower.

bearish look

The drop to 1.08-1.0780 (EURUSD: 1.0805) mentioned last week happened as expected. In fact, the coin fell beyond 1.0780 to bottom at 1.0760. Although it has bounced back from this decline, the overall picture remains weak. Strong resistance is located at 1.0880-1.09. The uptrend could be capped if the euro rises from here.

The general outlook is bearish. The Euro could drop to 1.07 – the next critical support level. A rebound from 1.07 could relieve the coin from rising towards 1.08-1.09. However, a break below 1.07 will increase the selling pressure. In this case, the euro could drop to 1.0550-1.05. So price action around 1.07 will need to be watched closely this week.

Crucial support

Indian Rupee (USDINR: 82.67) weakened towards 82.70 last week in line with our expectations. The local currency recorded a low of 82.79 and closed at 82.67 in the internal market. However, in the outer part, the rupee extended the decline to 82.93 and closed at 82.88.

The crucial supports are at 83 and 83.20. May be tested this week. If the rupee can recover from 83 or 83.20, it can give some relief. In this case, the local currency can rise towards 82 again. But a break below 83.20 will be very bearish. Such a break could drag the rupee to 84-84.20 in the coming weeks.

For now, we can allow a fall to 83 or 83.20. After that, the price action can be watched closely to get an indication regarding the next move.