The dollar index has resumed its uptrend after a short-lived corrective fall. A strong surge in the US Treasury yields last week aided the greenback to regain its momentum. The dollar index rose to a high of 107.16 before closing the week at 107.

The inflation data released last week showed a rise for the second consecutive month. The US Headline Consumer Price Index (CPI) rose 2.73 per cent (year-on-year) in November. This was up from a rise of 2.58 per cent (year-on-year) seen in October.

Fed meeting

The US Federal Reserve meeting outcome on Wednesday this week will be an important event to watch this week. A 25-basis points (bps) rate cut is already factored in the market. What is more important to see in this meeting will be the economic projections. The central bank has kept room for a 100-bps rate cut in 2025 according to the previous projection released in September. Will the Fed retain this forecast or revise it? We will have to wait and watch. Any change in the forecast can cause volatility in the market.

Bullish outlook

The support at 105.50 on the dollar index (107) has held very well. That keeps the broader bullish view intact. A test of 108 is likely in the near term. Failure to breach 108 can take the index down to 106-105.50 again. In that case, a consolidation between 105.50 and 108 is a possibility.

From a big picture, we can expect the dollar index to breach 108 and rally to 110-111 in the coming months.

Strong rise

The US 10Yr Treasury yield (4.39 per cent) surged last week breaking the resistance at 4.25 per cent. Our view of seeing a fall to 4 per cent has gone wrong. The immediate outlook is bullish to see a rise to 4.5 per cent. But price action after that will need a close watch. A strong break above 4.5 per cent will boost the momentum and take the yield up to 4.75-4.8 per cent in the coming week. On the other hand, a reversal from around 4.5 per cent can drag the yield down to 4.25 per cent again. We will have to wait and watch.

Fresh fall

The euro (EURUSD: 1.0501) is coming down again without seeing a bounce to 1.07.  On the weekly chart, there is a range of 1.0450-1.0650. But the monthly chart indicates that a fresh fall is on the cards. So, a break below 1.0450 and a fall to 1.0380 is likely to be seen in the near term.

Support ahead

The Indian rupee (USDINR: 84.79) fell to a low of 84.88 and has recovered slightly from there. Support is in the 84.95-85 region which seems to be holding well for now. A short-lived recovery to 84.70 or 84.60 is a possibility. But a rise above 84.60 might not be easy and looks unlikely for now. A consolidation between 84.70 and 85 is also one possibility that cannot be ruled out.

Broadly, the bias remains negative. We can expect the rupee to break 85 and fall to 85.30 going forward.