High risk aversion in the market has beaten down the US Treasury yields badly. The US 10Yr Treasury yield tumbled from a high around 3.75 per cent. It made a low of 3.36 per cent before closing the week at 3.43 per cent. The sharp fall in the yields continue to keep the dollar index weak and vulnerable to fall more.
As the market sentiment remains jittery, the US Federal Reserve is set to announce its monetary policy decision on Wednesday. The recent banking sector crisis in the US has increased the hopes in the market that the central bank could leave the interest rates unchanged at this meeting. However, the European Central Bank had raised their interest rates by 50 basis points (bps) last week amid the ongoing crisis in the US. So, this leaves the door still open to see the Fed increasing the rates by 25 bps this week. As such, the outcome of the Fed meeting on Wednesday and the market reaction for that is going to be very interesting to watch.
The US 10Yr Treasury yield (3.43 per cent) fell to 3.45 per cent as expected last week. Indeed, the yield extended the fall to make low of 3.36 per cent. The price action in the second half of last week indicates support around 3.35 per cent. Resistance is in the 3.5-3.55 per cent region.
A strong rise past 3.55 per cent is needed to turn the outlook bullish. As long as the yield stays below 3.55 per cent, the chances are high for it to break below 3.35 per cent. Such a break can drag the 10Yr Treasury yield to 3.15-3.1 per cent in the coming days. There after a bounce to 3.4-3.5 per cent is a possibility.
The dollar index (103.71) has broken its 104-106 range on the downside last week. This leaves the short-term outlook bearish. Immediate resistance is at 104. The next resistance is at 105.
The index can fall further to 102-101 in the coming weeks. The price action thereafter will need a close watch. A bounce from the 102-101 region can take the index up to 104 again. But a fall below 101 will increase the downside pressure. In that case, the dollar index can extend the fall up to 98 over the medium term.
The sideways range in the euro (1.0670) continues to remain intact. The range has slightly widened from 1.05-1.07 to 1.05-1.0750. The price action on the chart indicates good buying around 1.05. This coupled with the expected weakness in the dollar index leaves the bias positive. As such, the chances are high for the euro to breach 1.0750 and rise to 1.09-1.10 in the short term.
82.30-83.10 can be the trading range. A breakout on either side of this range will determine the next move
Contrary to our expectation, the Indian Rupee (USDINR: 82.55) declined below 82.30 last week. The currency fell to a low of 82.80 and has managed to recover from there. It closed the week at 82.55.
The immediate outlook is mixed. The level of 82.30 can now act as a resistance. Support is in the 83.00-83.10 region. So a range of 82.30-83.10 is a possibility for some time. A breakout on either side of this range will then determine the next move.
A break above 82.30 can take the rupee up to 82.10 and 81.90. On the other hand, a fall below 83.10 will see the rupee weakening to 83.50 initially and then even lower thereafter.