The dollar index experienced a corrective fall last week, influenced by the US inflation data and a sharp decline in US Treasury yields. The US Headline Consumer Price Index (CPI) rose slightly in December, while the US Core CPI showed a slowdown. All eyes are now on Donald Trump’s upcoming inauguration, with potential market volatility depending on any surprises related to tariffs or immigration.
Looking at the dollar outlook, the index’s bounce from a recent low indicates a broader uptrend, with potential to test 111 in the near future. However, the price action around 111 will be crucial, as a failure to break decisively above this level could lead to a pullback to 109 or even 108. Despite short-term fluctuations, the dollar index is expected to eventually breach 111 and rise to 114 and then 118-119 later in the year.
On the US 10Yr Treasury yield front, a significant drop was observed last week, with resistance at 4.8% holding strong. A short-term weakness is anticipated, with the yield possibly falling to 4.5% if it remains below the 4.68-4.7% resistance. A bounce from around 4.5% could establish a range between 4.5-4.8%, but a break below 4.5% could result in a further decline to 4.4%. Ultimately, a surpassing of 4.8% is needed for a medium-term rise to 5%.
The euro is struggling to breach 1.0350 against the dollar, indicating a negative outlook. A continued stay below this level could lead to a decline to 1.0170 and then to 1.0100-1.0180 in the short term, with a potential eventual drop to parity against the dollar.
For the Indian Rupee, a sharp decline below 86 was witnessed last week, with the currency falling to a new low of 86.69 before bouncing back slightly. The outlook remains bearish, with a potential breach of 86.70 leading to a fall to 87-87.20. Support around 87.20 could halt the decline temporarily, with expectations for a recovery from that level.
In conclusion, the currency markets are poised for continued volatility, with various factors influencing the dollar index, US Treasury yields, the euro, and the Indian Rupee. It will be essential to monitor upcoming events and economic data releases to assess the direction of these currencies in the weeks ahead.
