The Indian rupee is holding well on to its strength. The domestic currency has risen well against the dollar for the second consecutive week. It is getting strong support around 86 now. Rupee broke above the resistance at 85.75 and rose well beyond our expected level of 85.60. The domestic currency touched a high of 85.41 and closed the week at 85.47, up 0.6 per cent.

The dollar index, on the other hand, is showing a turn-around. It touched a high of 104.68 and had come down to close the week at 104.04. The support at 86 for the rupee clubbed with the turn-around in the dollar index leave the chances high for the domestic currency to gain further going forward

More strength

The Indian Rupee (USDINR: 85.47) has strong supports at 85.70, 85.85 and then at 86. The outlook is bullish. Rupee can see a sharp rise to 85.15 and even 85-84.90 from current levels. The region around 85 and 84.90 can be a strong resistance which might be difficult to break. So, there are good chances for the rupee to fallback towards 85.50 after testing the 85-84.90 support region.

Fresh fall

The dollar index (104.04) is dropping from around 104.68. The corrective rise to 105 mentioned last week is not happening. That increases the chances of seeing fresh fall from here itself.

The dollar index can fall to 103 in the near term. A break below 103 will then increase the downside pressure and drag the index down to 102-101 and even 100 in the coming weeks.

Any bounce will face resistance at 104.85 and 105.20.

Support holds

The support at 1.0730-1.07 for the euro (EURUSD: 1.0828) mentioned last week has held very well. The euro touched a low of 1.0733 and rose back from there.

Immediate resistance is at 1.0850. A break above it can take the euro up to 1.0950. An eventual break above 1.0950 will boost the bullish momentum. Such a break can take the euro up to 1.11 or even 1.1180 over the medium term.

The outlook will be bearish only if the euro breaks below 1.0730. If that happens, the currency can fall to 1.0650-1.06. For this fall to happen, the euro has to remain below 1.0850.

Downtrend intact

The US 10Yr Treasury Yield (4.25 per cent) broke above 4.35 per cent but did not sustain. It has reversed lower from around 4.40 per cent.  That keeps the broader downtrend intact. Immediate support is at 4.2 per cent. A break below it can drag the yield down to 4.1 – a crucial support level.

A break below 4.1 per cent and a subsequent fall below 4 per cent will be quite bearish. It will then drag the US 10Yr Yield down to 3.8-3.7 per cent over the medium term.