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The US dollar gained momentum last week. The dollar index rose breaking above 92 and closed on a strong note.
However, key resistances are coming up, which will need a close watch.
The euro tumbled below 1.18 as expected, and continues to remain under pressure. The US Treasury yields continue to sustain higher and keep the uptrend intact.
On the equities front, the Dow Jones Industrial Average rose back sharply towards the end of the week and closed on a strong note. It will have to be seen if the index can get a strong follow-through rise this week.
A series of important data releases are due in the US this week that will need a close watch — the US consumer confidence data on Tuesday, the Institute of Supply Management’s manufacturing Purchasing Managers’ Index (PMI) on Thursday, and jobs data on Friday.
Dow: Limited upside
The Dow Jones Industrial Average (33,072.88) fell below 32,500 last week as expected, but did not extend beyond 32,000, contrary to our expectation.
The index made a low of 32,071.41 and rose back sharply to close decisively above 33,000.
It will have to be seen if the Dow can get a strong follow-through rise in the coming week. There is room for a further rise to 33,450 if the index sustains above 33,000; then, a downward reversal is possible. This will be a pull-back from 33,450, and then a subsequent fall below 33,000 can drag the Dow to 32,000 again.
It can also keep the index in a sideways range of 32,000-33,000/33,450 for some time.
The price action at 33,450 will need a close watch this week.
Dollar: Resistances ahead
The US Dollar Index (92.72) rose sharply above 92 and closed on a strong note last week. Two important resistances are coming up at 93 and 94. A break above 93 can see an extended rise to 94. But a further rise past 94 is unlikely.
Broadly, we can expect the dollar index to reverse lower from either 93 or after an extended rise to 94. Such a fall will keep the downtrend that has been in place since March-2020 intact.
A sideways consolidation between 90 and 93/94 can be seen for some time before the dollar index falls deeper below 90 in the coming months. But a strong rise past 94 will negate this view and signal a trend reversal.
Euro: Close to supports
The fall to 1.18 has happened in the euro (1.1794). A low of 1.1762 was made last week. The 1.1850 level will be an intermediate resistance that can cap the upside, and will keep the euro pressured to test 1.17 on the downside.
From a long-term perspective, 1.17 and 1.16 are very important supports that can halt the current fall in the euro. A fresh rally thereafter can take the euro back to 1.20 and higher levels in the coming months.
Yields hold higher
The US Treasury yields continue to hold higher. The US 10-year (1.69 per cent) yield dipped to 1.62 per cent last week, but bounced back from there. The trend is still up. A strong support is in the 1.60-1.55 per cent zone, which can limit the downside for now.
The 10-year yield can consolidate between 1.60/1.55 per cent and 1.80 per cent for some time.
As long as the yield trades above 1.55 per cent, the outlook will be bullish to see a break above 1.8 per cent and a rise to 2 per cent in the coming weeks.
A strong fall below 1.55 per cent has to be seen to negate the chances of the rise to 2 per cent mentioned above.
From a long-term perspective, 2 per cent is a strong resistance from where we expect the yield to reverse lower.
Rupee to consolidate
The rupee oscillated in the 72.27-72.70 range last week. It strengthened to 72.27 initially, but reversed sharply to make a low of 72.70 before recovering from there to close the week at 72.5150.
Last week’s candle indicates indecisiveness in the market.
The 72.40-35 level is an immediate support, and 72.20-72.10 is the next strong support zone. The resistances are at 72.60 and 72.80. We can expect a range of 72.35-72.60 (narrow) or 72.10-72.80 (broad) in the near term.
The coming week is truncated for the rupee with only two trading days (Tuesday and Wednesday). The currency market is closed for three days on account of bank and public holidays.
The writer is a Chief Research Analyst at Kshitij Consultancy Services
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