The dollar index fluctuated within a narrow band throughout last week, trading between 100.16 and 101.23. The immediate outlook for the index remains uncertain, particularly with the upcoming release of the US Personal Consumption Expenditure (PCE) data on Friday, which could maintain a negative bias. Following the release of this data, the US 10-year Treasury yield saw a decline.
For September, the PCE data showed an increase of 2.37% year-on-year, down from 2.65% recorded the previous month. Since the PCE is the Federal Reserve’s measure of inflation, a continued decline in this metric will bolster the Fed’s strategy to lower interest rates in the future.
Data to Watch
Two significant data releases from the US warrant close attention this week. The first is the Manufacturing Purchasing Managers’ Index (PMI), set to be released on Tuesday, with August’s figure currently at 47.2. A lower PMI reading for September could raise concerns about an economic slowdown, which would likely have a negative impact on the dollar.
Additionally, jobs data will be released on Friday. If the unemployment rate, currently at 4.2% as of August, rises in September, it would further weaken the dollar.
Dollar Outlook
As of now, the dollar index stands at 100.38 and has a vital support level at 100. If the index remains above this psychological threshold, it is likely to continue consolidating sideways for a while longer. The dollar index could potentially trade in a narrow range of 100-101 or a wider range of 100-102. A breakout in either direction from the 100-102 range will likely dictate the next move for the index.
Should the index fall below 100, it would be considered bearish, possibly pushing it down to 98. Conversely, a significant break above 102 would relieve some downward pressure and could elevate the index to 104.
Yield Trends
The US 10-year Treasury yield, currently at 3.75%, has been unable to sustain a rise above 3.8%. The resistance level is noted at 3.83%. As long as the yield stays below this mark, there is a possibility of a decline to 3.6%. If the yield breaks below the immediate support level of 3.72%, this could trigger a further drop.
Currency Range Maintained
The euro (EURUSD: 1.1162) continues to maintain its sideways range between 1.10 and 1.12. Last week, the euro managed to break above 1.12 but subsequently fell back into the established range after reaching a high of 1.1214. Strong support levels are located at 1.1050 and 1.10. The bias remains optimistic, with expectations of a bullish breakout above 1.12. Such a breakout could see the euro rise to the 1.13-1.14 range.
However, if the euro drops below 1.10, it would indicate a bearish trend, potentially leading to a fall towards 1.09-1.08.
Indian Rupee Resistance
The Indian rupee (USDINR: 83.70) retreated last week after failing to break through the resistance level at 83.40. The domestic currency reached a high of 83.44 before reversing and erasing all its gains.
Support is seen at 83.80, which may be tested this week. If the rupee manages to hold above this support level, there could be a recovery, allowing it to rise back to the 83.50-83.40 range. This could result in a trading range of 83.40-83.80 for some time.
However, if the rupee falls below 83.80, it would increase downward pressure, possibly dragging it back to the 84 level once again.
In summary, market participants should remain vigilant, especially regarding upcoming economic data releases and their potential impact on the dollar, euro, and Indian rupee.
