It was a volatile week in the global markets across asset classes. The US dollar rose initially before giving back most of the gains at the end of the week. US equities fell sharply and then recovered well on Friday. The major focus last week was on the US Treasury yields that saw a sharp fall on Thursday on renewed concerns about global growth on the back of the increasing spread of Delta variant of Covid-19 virus across the world. However, the yields also bounced back on Friday, thereby easing the pressure in the market. The week ahead is very crucial as the dollar index is coming closer to a crucial trend-deciding support.

Dollar Index at key level

Dollar Index (92.10) remained volatile between the support at 92 and resistance at 93 last week. 92 will be a very crucial level to watch. A strong break below 92 can trigger a sharp fall to 91 initially. It will also indicate a top in place and keep the dollar index pressured on the downside to revisit 90 levels. In case the dollar index manages to sustain above 92, it can continue to oscillate in the 92-93 range. The price action at 92 will need a close watch this week.

Treasury yields can recover

The US 10-Yr Treasury yield (1.36 per cent) tumbled to a low of 1.25 per cent on Thursday and then bounced back on Friday. The 10-Yr has support in the 1.25-1.2 per cent region and that has held very well. As long as the 10-Yr yield sustains above 1.2 per cent, there is a strong likelihood of a strong corrective bounce towards 1.4-1.45 per cent in the coming weeks. Such a move could ease the pressure in the market and could be positive for risky assets like equities.

The support at 1.1780 on the euro (1.1877) mentioned last week has held very well, as expected. The euro made a low of 1.1782 and has risen back sharply from there. It will have to be seen if the euro can break above 1.19. Such a break will pave the way for a further rise to 1.20 — the next crucial resistance. A strong rise past 1.20 is needed to bring back the chances of seeing 1.22-1.23 levels again. Inability to breach 1.20 can keep the euro in a range of 1.1780-1.20 for some time. 1.19 and 1.20 are important levels to watch on the euro this week.

Dow retains momentum

The Dow Jones Industrial Average (34,870.16) fell sharply to a low of 34,145.59 on Thursday, following a sharp fall in the US Treasury yields and was threatening a deeper fall. However, the Dow surged to close at a record high on Friday. As mentioned last week, 35,000-35,100 will be a crucial resistance to watch. A strong rise past 35,100 is needed to move up further towards 36,000. Strong support is now at 34,500. The price action last week indicates that the Dow is getting fresh buyers below 34,500. So, as long as the Dow trades above 34,500, the chances are high for it to see 36,000. Also, the index will have to see a decisive close below 34,500 in order to come under pressure and fall deeper towards 34,000-33,500.

Rupee: room to strengthen

The resistance at 74.30 mentioned last week held well and the Indian rupee fell sharply to a low of 74.84. However it recovered from there to close at 74.64 in the spot market. The rupee indeed had continued to recover in the off-shore market following the sharp fall in the US dollar index. The currency has closed at 74.49 in the off-shore market. While above 74.60, the Indian rupee can strengthen towards 74.30-74.20 this week.

The level of 74.20 is a crucial resistance that has to be broken for the rupee to strengthen further towards 74 and 73.80.

Such a break will also negate the chances of seeing 75 on the downside. However, inability to breach 74.20 can trigger a fall back to 74.50 and lower levels and keep the rupee in the range of 74.20-74.85 for some more time. It will also keep alive the chances of testing 75 on the downside before seeing a strong reversal.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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