The dollar index has been moving up gradually over the last three weeks. The index fell initially last week but then managed to recover well in the second half of the week. The US Federal Reserve meeting outcome largely turned out to be a non-event for the currency market. The Fed left the rates unchanged at 4.25-4.5 per cent. The central bank also insisted that it will not be in a rush to cut interest rates without evaluating the impact of tariffs. The US 10Yr Treasury Yield has risen back well after the Fed meeting outcome.
The US Consumer Price Index (CPI) inflation data release on Tuesday will be an important data release to watch this week. If the data show that the inflation is easing, then that could be negative for the dollar and the US Treasury yield.
US Dollar index forecast
The bounce from the low of 99.18 and the close above 100 in the dollar index (100.34) is positive for the near term. The psychological level of 100 can be good immediate support now. The dollar index can rise to 101.50-102 in the short term. But a strong positive trigger would be needed to breach 102. Failure to breach 102 and a reversal from there can drag the dollar index below 100 again. It will also keep the broader downtrend intact. This leg of fall can drag the dollar index down to 98-96 in the coming weeks.
From a long-term perspective, the level of 96 is a very strong support which can halt the current fall. We can expect the dollar index to rise back from around 96 and move up to 100 and higher over the medium term.
Euro forecast
The euro (EUR/USD: 1.1250) is coming down in line with our expectation. The fall to 1.12 is happening as expected. A break below 1.12 can see an extended fall to 1.1150. However, a fall beyond 1.1150 is unlikely. We expect the euro to reverse higher from around 1.1150 and rise to 1.16-1.18 in the coming weeks. From a big picture, there is potential for the euro to target 1.20 on the upside in the coming months.
Resistance ahead
The US 10Yr Treasury Yield (4.38 per cent) can rise to 4.55 per cent in the near term. A break above the immediate resistance level of 4.4 per cent can trigger this rise. The price action thereafter will need a close watch. A break above 4.55 per cent and a subsequent rise past 4.6 per cent will be bullish. It will then take the 10Yr Treasury Yield up to 4.8-4.85 per cent again.
On the other hand, a reversal from around 4.55 per cent can drag the yield down to 4.2-4.1 per cent again.
Support coming up
The Indian rupee (USDINR: 85.38) was knocked down badly. The escalating tension between India and Pakistan dragged the domestic currency last week. The rupee fell about 1.5 per cent intraweek to make a low of 85.87. It managed to recover from there to close the week at 85.38, down 0.98 per cent.
Support for the rupee is at 86.10. Resistance is at 85. So, broadly 85-86.10 can be the trading range for the coming week. Within this range, the chances are high for it to fall towards 86-86.10 in the near term on the back of the ongoing geopolitical tensions.
In case the rupee declines below 86.10, then it can fall to 86.50-86.70. Rupee has to break 85 decisively to get a breather and rise towards 84.60 and 84.40 again.
Published on May 10, 2025
