The struggle in reaching a consensus on the virus relief package in the US kept the market mixed and unclear last week. The Dow Jones Industrial Average oscillated around the psychological level of 30,000 all through the week.

The US Dollar Index, on the other hand, remained stable in a narrow range of 90.60-91.25 in the past week.

PO13Dowjonesindexjpg
 

Dollar Index: Limited downside

The US Dollar Index (90.82) has little room on the downside to test 90. But as mentioned last week, the index has a strong support in the 90.10-90.00 region. A dip to test 90 is possible in the near term. Thereafter, a bounce from the 90.10-90.00 support zone can take the Dollar Index higher to 92 as we enter the New Year.

The US Federal Reserve meeting outcome is due on Wednesday. While the US government is struggling to strike a deal on the virus stimulus, the market will be closely watching if the Fed can provide any relief from its side this week. The outcome of the US Fed meeting could influence the Treasury yield movement.

The US 10-year Treasury yield came down to 0.90 per cent last week from levels of 0.97 per cent in the week earlier. The yield has the room to test 0.80 per cent in the coming days. It will have to be seen if it manages to sustain above 0.80 per cent not, which will be key in deciding the direction of the move going forward.

Retail sales, consumer confidence and industrial production are some of the key data releases to watch from the US this week.

Dow near resistance

The Dow Jones Industrial Average (30,046.37) hovered at the psychological level of 30,000 all through last week. There is support at 29,500 and 29,000.

As long as the index remains above 29,000, the chances of seeing 30,800-31,000 on the upside cannot be ruled out over the next two weeks. However, the region between 30,800 and 31,000 is a strong resistance that can cap the upside of the current rally.

We can expect the Dow to reverse lower from the 30,800-31,000 resistance zone. Such a reversal can drag the index lower to 29,000-28,000 and even lower in the coming months.

Eurog ets stimulus boost

The Euro (1.2113) fell in the initial part of the week. However, the pair gained momentum after the European Central Bank’s (ECB) monetary policy meeting on Thursday. The ECB left the interest rates unchanged as expected.

However, the central bank increased the Pandemic Emergency Purchase Programme (PEPP) stimulus package by €500 billion to €1,850 billion. The tenor of the programme was also extended up to March 2022 from the earlier end date of June 2021.

The euro surged from1.2080 to 1.2160 after the ECB meeting, but came off slightly towards the end of the week. The pair has been consolidating between 1.2050 and 1.2170 over the last one week. Strong supports are at 1.2050 and 1.2000. As long as the euro trades above 1.20, the short-term outlook is bullish to see a rise to 1.2200 and 1.2300 in the coming weeks. Thereafter, a sharp corrective fall to 1.21-1.20 is possible from around 1.2300 levels.

Brexit worry

Among the majors, the British pound was beaten down badly last week. There was fear that the UK and the European Union might fail to strike a deal on Brexit before the December 31 deadline. The British pound was down sharply from its high of 1.3478 to close the week at 1.3231, down 1.6 per cent for the week.

Stable rupee

The rupee weakened to 73.96 initially in the past week. Though it managed to recover from this low, the currency failed to break below the crucial resistance level of 73.50. The rupee can oscillate in the range of 73.50-74.00 in the near term.

A breakout on either side of this range will then determine whether the currency can weaken towards 74.25-74.50 or strengthen to 73.00-72.90.

The writer is Chief Research Analyst at Kshitij Consultancy Services

comment COMMENT NOW