Technical Analysis

Dollar retreats and stabilises

Gurumurthy K | Updated on June 26, 2021

A fresh rise is still possible with strong supports at 91.50 and 91.20 on the dollar index

Currency markets witnessed a slight and short-lived recovery last week after having fallen sharply against the US dollar in the week earlier. The euro bounced back above 1.19 and the Dollar Index fell below 92 initially last week but then remained stable for the rest of the week.

The pull-back in the dollar index is likely to be short-lived as it seems to be getting strong support at 91.5. The dollar can regain strength in the coming days and move up further which, in turn, could drag the euro lower. As a result, the chances are high for the Indian rupee also to remain under pressure below 74.

Dollar gets support

The US Dollar Index (91.81) fell from the high of 92.37 on Monday last week and then had come down from there. However, the index is getting support at 91.50 and is managing to hold well above it. 91.50 and 91.30-91.20 are important supports to watch this week. As long as the index stays above these supports, the outlook is bullish. A rise to 93 is possible in the near term. The dollar index will have to fall below 91 decisively in order to negate the rise to 93. Such a fall can then drag the index lower to 90-89.80 again in the short term.

The US Institute of Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) data on Thursday and the non-farm payroll, unemployment numbers on Friday, are the important data releases to watch this week that can influence the dollar movement.

Euro lacks strength

The euro (1.1935) rose back above 1.19 last week instead of extending the fall to 1.18. However, the currency seems to be lacking strength and is facing strong resistance at 1.1975. The euro will have to rise past 1.20 from here in order to gain strength and move up towards 1.21. As long as the currency remains below 1.20, the bias is negative to see a fall-back towards 1.18 in the coming days.

Treasury yield – limited upside

The US 10Yr Treasury Yield (1.53 per cent) fell to 1.35 per cent last week as expected and had risen back sharply from there. There is room for the yield to move up to 1.6 per cent — the next important resistance level that can cap the upside for now. A reversal from 1.6 per cent can drag the yield lower to 1.4 per cent again. If the 10Yr yield manages to break above 1.6 per cent, a further rise to 1.7 per cent is possible. The price action at 1.6 per cent will need a close watch this week.

Dow: Crucial resistance ahead

The Dow Jones Industrial Average (34,443.84) had recovered sharply last week, thereby reducing the danger of breaking below 33,000 for now. However, there is an important resistance coming up in the 34,700-35,000 region. The Dow will have to break above 35,000 decisively in order to bring back the bullish momentum. Such a break will then pave the way for a fresh rise to 36,000, going forward. On the other hand, if the Dow fails to break above the 34,700-35,000 resistance and reverses lower, it can fall back to 34,000 and even 33,500-33,000 again. In that case the danger of seeing a deeper fall breaking below 33,000 will still remain alive. As such, the price action in the 34,700-35,000 region will need a close watch this week.

Rupee to remain weak

The Indian rupee (74.2150) remained broadly stable below 74 all through last week. It fell to a low of 74.39 initially by Tuesday and recovered from there to remain stable for the rest of the week. 74.10 and 73.95 are important resistances to watch. For now 73.95-74.40 can be a broad near-term trading range. A strong break above 73.95 is necessarily needed for the rupee to strengthen towards 73.75 and 73.50 again. But as long as it trades below 73.95 the bias is bearish. The chances are high for it to break below 74.40 and fall to 74.50 initially and then 74.75 and 75 eventually in the coming days. The level of 75 is a strong support from where the rupee is likely to reverse higher again.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on June 26, 2021

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