Technical Analysis

Dollar closes the week on a strong note

Gurumurthy K | Updated on August 21, 2021

The dollar index can now have room to test 94-94.30 on the upside

The US Dollar Index (93.46) rose back last week and closed on a strong note above 93. The euro failing to break above 1.18 and falling sharply below 1.17 took the index above 93 in the past week. The strong close above 93 keeps the near-term outlook bullish for the dollar index. Immediate supports are at 93.20 and 93. A further rise to 94-94.30 is possible this week.

It will be important to see if the dollar index sustains above 94 and gets a strong follow-through rise above 94.30 or not. Such a break above 94.30 will be very bullish which, in turn, will open doors for a fresh rise to 96 over the medium term. Inability to break above 94.30 can drag the dollar index lower to 93-92.50 again. The price action in the 94-94.30 region will need a close watch this week.

Euro: Bearish

The euro (1.1695) failed to break above 1.18 last week. The currency made a high of 1.1801 and reversed sharply lower to a low of 1.1664 before closing at 1.1695 for the week. The outlook is bearish. Resistance for the week will be at 1.1740 and 1.1760. The euro can fall to 1.16 in the coming days. The level of 1.16 is a very crucial support level. The euro will have to hold above 1.16 in order to avoid a much deeper fall to 1.15, going forward. A bounce from 1.16 can take the pair up to 1.17 again. From a bigger picture, the euro will now have to rise above 1.18 decisively to turn the sentiment positive again.

Treasuries: Have room to fall

Weak data releases from the US kept the Treasury yields lower last week. The US 10Yr (1.26 per cent) Treasury yield remained below 1.3 per cent all through the week. As long as the yield remains below 1.3 per cent, the outlook is bearish to see 1.2-1.18 per cent in the coming days. The 1.2-1.18 per cent region is a very crucial support zone.

The 10Yr yield will have to bounce-back sharply from this support zone in order to avoid a much deeper fall to 1.1 per cent from here itself. A bounce from the 1.2-1.18 per cent support zone can take the 10Yr yield up to 1.3-1.35 per cent again. The price action in the 1.2-1.18 per cent support zone will need a close watch in the coming days.

Dow: Bullish

The Dow Jones Industrial Average (35,120.08) failed to sustain above 35,250 and fell last week contrary to our expectation to see a rise to 36,000. The index fell to a low of 35,690.20 on Thursday but had risen back from there to close above 35,000 on Friday. The current pull-back move is likely to be short-lived. Also there is strong support in the broad 34,500-34,000 region. As such, any sharp fall below 35,000 is likely to get fresh buyers coming into the market.

From a bigger picture, the outlook is bullish as long as the index remains above 34,000. As such, the rise to 36,000-37,000 mentioned last week can still be seen in the coming weeks. The outlook will turn negative and the rise to 36,000 will get negated only if the Dow falls below 34,000. But that looks less likely at the moment.

Rupee: Range-bound

The resistance at 74.20 on the Indian rupee (74.39) held well last week. The rupee remained relatively stable in the range of 74.20-74.50 all through the week. It is important to see that the rupee has managed to stay above 74.50 in spite of the euro weakness and the dollar strength. However, on the charts, as long as the rupee trades below 74.20, the chances are high for it to break below 74.50 and fall to 74.70-74.80.

On the other hand, the domestic currency will have to break above 74.20 decisively in order to gain momentum and strengthen towards 74 and 73.80, going forward.

Broadly as mentioned last week, the Indian rupee will have to see a breakout on either side of 74.20 or 74.50 to give a clear cue on the next direction of move.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on August 21, 2021

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