Technical Analysis

Dollar fails to retain strength

Gurumurthy K | Updated on August 14, 2021

Inability to sustain above 93 can drag dollar index within 91.70-93.20 range

The US Dollar Index began the week on a positive note by adding to gains made in the previous week. However, the index lost momentum and fell back in the second half of the week, especially on Friday.

A data release from the University of Michigan showing a sharp fall in the consumer sentiment dragged the dollar index and the Treasury yields lower on Friday. The preliminary data for August showed that the consumer sentiment index in the US fell sharply to 70.2 from 81.2 in July.

Earlier in the week, the inflation data also showed a slowdown in the pace of rise. The US Core Consumer Price Index (CPI) inflation rose 4.23 per cent (YoY) in July as against a 4.45 per cent rise seen in June. Lack of fresh trigger in terms of data halted the upmove in the dollar index and dragged it lower towards the end of last week. For the coming week, US retail sales and Industrial Production on Tuesday and Housing Starts on Wednesday are the important data releases to watch.

Dollar index: Room to fall

The US Dollar Index (92.53) broke above 93 as expected, but failed to sustain. The index made a high of 93.19 and has come off from there to close the week lower. This has increased the chances of the index falling back to 92-91.75 again in the coming days. On the charts 91.70-93.20 has been the range since July. This range seems to be holding well as of now. A breakout on either side of 91.70-93.20 will only give a clear cue on whether the index will move up to 93.50-94, or fall to 91-90.

Euro: Key resistance ahead

The Euro (1.1793) fell to test 1.17 initially last week as expected. The currency fell to a low of 1.1704 on Wednesday and then rose back sharply towards end of week. It will have to be seen if Euro can break above 1.18 in the coming week. Such a break can take it up to 1.1850 and 1.19. However, from a bigger picture, the Euro will have to breach 1.19 decisively to become bullish again. A pull back from 1.18 itself immediately this week or after an extended rise to 1.19 spells danger of the currency falling to 1.16 in the coming weeks.

The US 10Yr (1.28 per cent) Treasury yield surged to 1.37 per cent during the week but fell sharply on Friday giving back all the gains made during the week. A fall below 1.27 per cent can drag the yield lower to 1.18 per cent this week. The 10Yr will now have to bounce back above 1.3 per cent from here and then get a strong follow-through rise above 1.35 per cent to bring back the chances of seeing 1.45 per cent on the upside mentioned last week.

The Dow Jones Industrial Average (35,515.38) rose well last week, breaking above the key resistance level of 35,250. The outlook is bullish. The Dow can rise to 36,000 immediately and then even to 37,000 eventually in the coming months. The region between 35,250 and 35,000 will now act as a good support. Dips to this support zone are likely to get fresh buyers from the market. The Dow will now come under pressure only if it falls below 35,000 decisively. Such a fall looks less probable.

Rupee: Support holds

The Indian Rupee (74.25) weakened initially last week and fell to a low of 74.4750 on Wednesday. But the currency managed to recover thereafter and closed the week at 74.25 on Friday. The support in the 74.45-74.50 region mentioned last week has held well. Immediate resistance is at 74.20. A break above it can take the rupee up to 74 and 73.80 in the coming days. If the Rupee remains below 74.20, a narrow range of 74.20-74.50 can be seen for some time. As mentioned last week, the Indian Rupee will have to fall decisively below 74.50 to come under pressure for a fall to 74.60 and 74.80.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on August 14, 2021

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