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Currencies can enter into a consolidation phase for the next couple of weeks as the market heads into the year-end holiday season. As such, movements are more likely to be muted.
The support (89.60-89.50 zone) in the Dollar Index mentioned last week is holding well as expected. The index can consolidate above this support for some time before seeing a corrective bounce.
The euro, on the other hand, can remain stable in the near term below its immediate resistance.
With limited upside from current levels, a short-term corrective fall is possible in the euro going forward, as the Dollar Index begins its corrective rise.
Covid fear resurfaces
News that a new variant of the Covid-19 virus is spreading in the UK jolted the markets, especially the equity segment, initially last week.
But the impact was short-lived. The Dow Jones Industrial Average (30,199.87) fell, breaking below the psychological level of 30,000 last Monday.
But the index recovered from the low of 29,755.53 and remained stable above 30,000 for the rest of the week. The Dow can oscillate in the 29,500-30,500 range in the near term.
US stimulus: Uncertainty prevails
The US reached an agreement on the $900-billion Covid relief package last week. However, a fresh threat has emerged as US President Donald Trump wants the direct payments to the people to be increased from $600 to $2,000. As such, renewed fears are in the market that the President might reject the current $900-billion stimulus package.
The developments on this front will need a close watch this week.
Dollar Index: Support holds
The Dollar Index (90.33) is holding well, as expected, above the 89.60-89.50 support zone mentioned last week. Indeed, the bounce to 91 was also seen in line with expectation.
A consolidation between 89.50 and 91 is possible for a week or two as trading is likely to be muted on the back of the holidays.
As long as the index stays above 89.50, a corrective rise to 92 cannot be ruled out as we enter the New Year.
Euro can consolidate
The euro (1.2186) is trading stable above 1.2150 after falling initially last week from 1.2250. The pair can continue to trade stable and oscillate in the range of 1.21-1.23 over the next couple of weeks.
From a short-term perspective, 1.23-1.2350 will be a good resistance. The euro is likely to remain below this resistance zone and see a corrective fall to 1.20 in the coming weeks.
The UK and the European Union (EU) have struck a trade deal much ahead of its December 31, 2020, deadline. The new deal provides “zero tariff and zero quotas” on all goods, which otherwise would have been subject to tariffs under the older system or by the World Trade Organization (WTO) norms. However, businesses will have to meet certain conditions to enjoy this benefit.
Also, the deal will have to be passed on both the UK and the EU parliaments.
Pound at resistance
The British Pound (1.3550) has surged so far on the back of the Brexit deal progress. But a crucial resistance is at 1.37. Inability to breach 1.37 can trigger a fall to 1.33-1.32 in the coming weeks. The price action around 1.37 will need a close watch.
A strong break above 1.37 will be needed to pave the way for a further rise to 1.40 levels. Correspondingly, the GBPINR (99.86) has a strong resistance coming up in the 101-102 region. A reversal from this resistance zone can drag it to 97 initially and to 96-95 eventually.
Rupee at crucial hurdle
The eupee (73.5475) weakened to test 74 levels as expected last week. The currency made a low of 73.9450, but managed to recover from there. The 73.50-73.45 range will be an important resistance zone to watch. A strong break above 73.45 is needed for the rupee to strengthen towards 73.
Inability to break above 73.45 can drag the rupee lower again to 73.80 and 74 levels. In that case, the chances of the rupee weakening to 74.25 or even to 74.50 levels are also possible going forward. The price action in the 73.50-73.45 region will need a close watch.
The writer is a Chief Research Analyst at Kshitij Consultancy Services
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