Can USD/LKR hold LKR327.655 support as US dollar index drops to May lows?

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Highlights

US Treasury doubled its buyback operations for longer-dated bonds, increasing demand and weakening the US dollar globally.
The US dollar index reached its lowest level since late May, and USD/LKR saw additional downward pressure as the Indian rupee appreciated.
USD/LKR trades below major moving averages with strong bearish technical signals and is likely to remain in the LKR327.655 to LKR330.949 range absent a resistance break.

Treasury buybacks and stronger rupee reinforce regional dollar weakness

The US Treasury's decision to double its buyback operations for longer-dated Treasury bonds, as reported by Economictimes Indiatimes, has increased demand for these securities and consequently weakened the US dollar on global markets. This move drove the US dollar index down to its lowest level since late May, shifting sentiment against the dollar and adding downward pressure to the USD/LKR rate. Meanwhile, appreciation of the Indian rupee alongside this development has further subdued the demand for the US dollar across regional forex markets.

Bearish momentum deepens as resistance and oversold signals converge

Technical analysis reveals USD/LKR is trading below its MA-20 and MA-50, while still remaining above MA-200. The Ichimoku Kijun level at LKR330.579 presents immediate resistance, and support is seen near LKR327.655. Momentum indicators are decisively bearish, with MACD, ADX, and Awesome Oscillator all showing sell signals, and both RSI and CCI are positioned in oversold territory. A divergence is observed with Stoch RSI now in overbought conditions, potentially hinting at short-term volatility, while Bull/Bear Power confirms seller dominance. Today's price action is marked by a narrow move near the daily low on subdued volatility.

Downside pressure dominates outlook amid narrow consolidation band

In the short term, USD/LKR is expected to remain within a range of LKR327.655 to LKR330.949, reflecting typical volatility relative to recent levels. The base case scenario anticipates price consolidation inside this band, with a very high probability of additional downside movement. If the pair breaks above LKR330.579, a limited upside cannot be ruled out, though the likelihood remains low. Conversely, a drop below LKR327.655 would indicate a further bearish extension for the pair.

Anton Kharitonov, expert at Traders Union, sees USD/LKR trading in a technically weak setup, weighed down by bearish momentum and oversold signals on multiple indicators. He notes that the recent US Treasury bond buyback news has shifted sentiment against the dollar, amplifying downside risks. Price remains vulnerable as long as it stays below LKR330.579, with sellers dominating near-term flows. "Until we see a clear break above LKR330.579, my tactical stance remains cautious and defensive on this pair."

Earlier, analysts noted that USD/LKR was experiencing near-term consolidation as downside risks outweighed bullish momentum. With recent technical weakness and bearish momentum indicators now prevailing, traders should closely monitor the LKR327.655 support zone, as a sustained break below this level could signal a continuation of the downward trend.

Source of Data: USD Price Analysis by TU

The analysis is based on a proprietary model combining technical, on-chain, and expert data. Not investment advice. See methodology

The information is based on forecasts and does not constitute investment advice or a guarantee of future results. Market conditions may change. See our Disclaimer and Editorial Integrity for details.