Treasury yields form a strong base for a fresh rise

A sideways consolidation above a trendline support strengthens the bullish case

Dollar index and the US Treasury yields remained broadly stable last week. In the absence of any major data release from the US last week, both the dollar index and the yields were range bound. But this week, the US inflation data will be out.

The US Consumer Price Index (CPI) data will be out on Wednesday. The inflation number could move the market either way. If the data shows that the inflation is heating up again, then it would push the dollar index and the yields higher. So, the inflation numbers could set the direction for the dollar and Treasury yields going forward.

ROOM TO FALL

The dollar index (105.30) seems to be struggling to get a strong follow-through rise. The index rose to a high of 105.74 and then has come down from there. This keeps the chances alive of the index falling to 104.50104.30. The broad 104.50104 is a very strong support zone.

A break below 104 is less likely. As such, we can expect the dollar index to reverse higher again from the 104.50-104 support zone. That leg of rise will have the potential to take the dollar index up to 106-107 again.

Only a fall below 104, will bring the index under pressure to see 103-102 on the downside.

ABOVE SUPPORT

The US 10Yr Treasury yield (4.49 per cent) has a very strong support around 4.4 per cent, which is holding well for now. On the charts, the outlook is bullish - to see 4.6 per cent. A break above 4.52 per cent can trigger this rise. A further break above 4.6 per cent will boost the bullish momentum. Such a break can take the US 10Yr yield up to 4.8 per cent and 4.9 per cent in the coming weeks.

The outlook will turn negative only if the yield declines below 4.4 per cent. In that case, a fall to 4.3-4.2 per cent can be seen.

RESISTANCE AHEAD

The euro (EURUSD:1.0771) has risen back from the low of 1.0725 last week. However,

strong resistance is in the broad 1.08-1.0850 region, which can cap the upside. As long as the euro stays below 1.0850, the bias will remain negative to break below 1.07. Such a break can take the currency down to 1.06 initially and then to 1.0450 eventually in the coming weeks.

A strong break above 1.0850 is needed to strengthen the bullish case for a rise to 1.10-1.11 again.

NARROW RANGE

The Indian rupee (USDINR: 83.50) was stuck in a narrow 10-paise range of 83.4283.52 last week. Within this, it has closed at the lower end the range at 83.50 on Friday. On the charts, it looks like the rupee can gradually move down towards 83.60 as long it stays below 83.40. A break below 83.60 can drag the rupee down to 83.80.

Rupee has to get a sustained break above 83.40 to move up towards 83.30 and 83.20.