Technical Analysis

Dollar recovers, retains sideways range

Gurumurthy K BL Research Bureau | Updated on September 11, 2021

The support at 92 is holding well and keeps the 92-94 range intact

The US Dollar Index has risen well in the past week. The euro coming off and failing to rise past 1.19 has taken the dollar index higher. The European Central Bank’s decision to slow down the pace of its asset purchase under the pandemic stimulus programme did not have a major impact on the euro. Broadly, the range support at 92 on the dollar index has held well and is keeping intact the broad range of 92-94.

The US Dollar Index (92.64) had managed to sustain above 92 and has risen back in the last week. As mentioned in this column a couple of weeks back, 91.80 is a crucial support for the index. That seems to be holding well. The recent bounce has happened from the low of 91.95. It will now be important to see if the Dollar Index breaches 93 from here. A strong break above 93 is needed to reduce the danger of breaking below 91.80. Such a break can bring back the bullish momentum and take the Dollar Index up to 93.70 and 94 again. It will also keep the broader 92-94 range intact. Inability to breach 93 can keep the index in a tight range of 92-93 for some time.

The coming week is packed with a series of important data releases that could impact the movement of the US dollar as well as the Treasury yields. The US Consumer Price Index (CPI) inflation data release is on Tuesday. A strong inflation number will strengthen the case for the US Federal Reserve to begin the asset purchase taper by the end of this year as per plan. The inflation numbers will be followed by the Index of Industrial Production (IIP) data on Wednesday and Retail Sales on Thursday.

Treasury Yields: Room to rise

The US 10-Yr Treasury Yield (1.34 per cent) has been moving up gradually over the last couple of weeks. It has good support at 1.3 per cent. As long as the yield sustains above 1.3 per cent, the outlook is bullish for it to test 1.4 per cent and even higher levels in the coming weeks. The yield will come under pressure only on a strong break below 1.3 per cent. Such a break can drag it to 1.2-1.18 per cent.

ECB outcome

The European Central Bank (ECB) left the rates on the main refinancing operations at 0 per cent in its policy meeting last week. The interest rate on the marginal lending facility and the deposit facility are also left unchanged at 0.25 per cent and -0.5 per cent respectively. The quantum of the stimulus programmes was also left unchanged. However, the central bank had said that it will reduce the pace of asset purchase under the Pandemic Emergency Purchase Programme (PEPP) in the coming months compared to the previous two quarters.

The ECB intends to buy a total of €1,850 billion worth of assets until the end of March 2022. This move from the ECB has come two weeks after the US Federal Reserve Chairman Jerome Powell indicated that the central bank will start tapering its asset purchase by the end of this year.

Euro: Near crucial support

The euro (1.1808) has come off after testing 1.19 at the beginning of the month. It is now poised near a crucial 1.18-1.1780 support zone. A strong break below 1.1780 will be bearish to see a test of 1.17 on the downside again. It can also keep the currency pressured to see a deeper fall to 1.16 and even 1.15 eventually, going forward. On the other hand, if the euro manages to sustain above 1.18-1.1780, then it will have to be seen if it can rise past 1.19 or not. The euro has to break above 1.19 to gain fresh momentum and rise further to 1.20-1.21 again. Overall, it is a wait and watch situation for the euro this week.

Rupee: Resistance ahead

The Indian rupee (73.5050) has recovered well after falling to a low of 73.8525 on Thursday last week. 73.40 will be an important resistance for this week. The rupee has to break above 73.40 in order to strengthen further towards 73 in the coming days. Inability to break 73.40 can keep the currency under pressure to test 73.75 and even 74 this week. The price action at 73.40 will need a close watch this week.

Published on September 11, 2021

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