Technical Analysis

Dollar loses momentum, turns weak

Gurumurthy K | Updated on July 31, 2021

The Dollar index can now fall towards the lower end of its 89.50-93.50 range

The Dollar index failed to break above the crucial resistance level of 93 and came down sharply last week. The Euro, on the other hand, has held well above its support at 1.1750 and has risen back sharply above 1.18. This keeps the broader sideways range in the currency market intact. The band of 89.50-93.50 on the Dollar index and 1.17-1.2350 on the Euro are in the range that has been in place for a long time. Within this range, the Euro can move up and the Dollar index can fall in the coming weeks.

Fed policy outcome

The US Federal Reserve’s policy meeting last week turned out to be a non-event. The Fed left the rates and the asset purchases unchanged at 0 per cent-0.25 per cent and $120 billion per month respectively. The central bank also did not give any hint on when it would start the tapering of its stimulus. With no surprise from the Fed, the market was left with no impact. The market will now have to wait for the Economic Policy Symposium in Jackson Hole to be held from August 26 to August 28, 2021. This is a major event for the market as the Fed uses it to give hint on any policy changes.

Dollar turns weak

The Dollar index (92.09) has failed to break above 93 and declined sharply last week. The index has closed just above the key intermediate support level of 92. Inability to breach 93, followed by a sharp fall last week, has turned the bias bearish on the charts. A break below 92 and a further fall to 90 and 89.5 looks likely in the coming weeks. Broadly, the 89.50-93.50 range that has been in place since January this year remains intact. Within this range, the chances are high for the Dollar index now to fall towards 90-89.50 — the lower end.

Euro gains strength

The key support at 1.1750 has held very well and the Euro (1.1871) rose back sharply above 1.18 last week. This has reduced the danger of seeing 1.17-1.16 on the downside cautioned last week.

The outlook is now bullish. We can see the Euro moving up towards 1.20 in the coming days. A strong break above 1.20 will see the rally extending towards 1.22 and 1.23 again, in the coming weeks. However, in case the Euro fails to breach 1.20 and falls back below 1.19-1.1850 again, then the danger of seeing 1.17-1.16 will still be alive. As such, the price action at 1.20 will need a close watch.

Dow hovers at resistance

The Dow Jones Industrial Average (34,935.47) oscillated around 35,000 all through the week. The index seems to be in need of a fresh trigger to gain momentum and see a fresh rise from here. 35,100 and 35,250 are important resistances to watch.

A strong rise past 35,250 is needed to pave the way for a rise to 36,000 and higher levels, going forward. As long as the Dow remains below 35,250, the chances of it falling back to 34,250-34,000 in the near term cannot be ruled out.

The broader bias is bullish, with strong supports at 34,000 and 33,000. Only a strong fall below 33,000 will turn the outlook bearish.

Rupee to remain strong

As expected, the Indian Rupee (74.42) strengthened towards 74.20 last week. The domestic currency made a high of 74.2250 on Thursday and reversed lower from there to close the week at 74.42 on Friday in the spot market.

In the off-shore market, the rupee closed at 74.33. As mentioned last week, a strong break below 74.20 will be needed for the rupee to strengthen further towards 74 and 73.80 in the coming weeks.

As long as the rupee remains below 74.20, it can trade in a range of 74.20-74.60 for some time. The bias is positive for the rupee as long as it trades above 74.60.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on July 31, 2021

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