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The dollar index was beaten down last week. Trump threatening to levy tariffs on the domestic companies as well as the European Union kept the greenback under pressure. The index was down almost 2 per cent. Indeed, it has come down below the psychological 100 mark.
This fall below 100 in the dollar index aided to arrest the fall in the Indian rupee and triggered a sharp recovery on Friday.
The US Treasury yields witnessed a sharp rise in the first half of last week. However, they fell back in the second half, giving back most of the gains.
Dollar index outlook
The fall and close below 100 is negative for the dollar index (99.11). That keeps the broader downtrend intact. Resistances are at 100 and 100.50. The dollar index can fall to 98 immediately. A break below 98 will then drag it down to 96.
We reiterate that the level of 96 is a strong long-term support. As such the chances are high for the dollar index to find a bottom around that level. We expect the dollar index to rise back from around 96 and move back up towards 100 and higher in the coming months.
Fresh rise
The strong bounce from the low of 1.1065 is positive for the euro (EURUSD: 1.1362). That keeps alive the broader bullish view. Immediate support is at 1.1250. Below that 1.1170 and 1.1090 are the next important supports. We expect the euro to breach 1.14 and see a fresh rise to 1.15-1.16 in the coming weeks.
Mixed outlook
The US 10Yr Treasury Yield (4.51 per cent) broke above 4.6 per cent but failed to sustain higher. It touched a high of 4.63 per cent and fell back sharply towards the end of the week.
Support is in the 4.4-4.35 per cent region which can be tested this week. A bounce from this support zone will then increase the chances of a rise back to 4.5 and 4.6 per cent again. A sustained break above 4.6 per cent is needed to take the yield up to 4.8-4.85 per cent
On the other hand, if the yield declines below 4.35 per cent, a fall to 4.2-4.1 per cent can be seen. We will have to wait and watch.
Sharp recovery
As expected, the downside in the Indian rupee (USDINR:85.22) was limited to 86.10. The rupee fell to a low of 86.11 on Thursday. On Friday the domestic currency witnessed a strong reversal and rose sharply, recovering all the loss.
Immediate resistance is at 85 which can be tested this week. If the rupee manages to surpass this hurdle it can rise further towards 84.60-84.40 in the short term.
Failure to breach 85 can keep the Indian rupee in a range of 85-86 for some time. But considering the weakness in the dollar index, the chances are high for the rupee to break 85 and rise to 84.60-84.40.
Published on May 24, 2025
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