Global 360 . Dollar stabilises, Dow struggles

Equity markets across the globe came under pressure last week. The major global indices witnessed a strong sell-off, indicating the end of the strong rally that has been in place since March last year and also signalling the start of a correction.

Indices such as the Dow Jones Industrial Average, the Nikkei 225 and the Shanghai Composite fell over 3 per cent last week.

On the domestic front, the Sensex and the Nifty 50 were beaten down badly and were down over 5 per cent last week.

While there is room for the global indices to fall further, it will have to be seen if the outcome of the Budget on Monday can give a breather for the Indian indices to reverse higher.

Dow under pressure

The Dow Jones Industrial Average (29,982.62) declined sharply last week and closed just below the key psychological level of 30,000.

The index can extend the fall to 29,500 or even to 29,000 in the coming days. Resistance will now be at 30,500.

From a bigger picture, 29,000 will be a very crucial level to watch.

A strong break below it can trigger a much deeper fall to 27,500 going forward. As such, the price action around 29,000 will need a close watch in the coming weeks.

Dollar range-bound

The US Dollar Index (90.53) has been stuck in the band between 90 and 91 over the past three weeks. The outcome of the US Federal Reserve’s policy meeting last week had no impact on the dollar as the central bank left the interest rates and the stimulus programme unchanged.

The near-term outlook for the Dollar Index is mixed. A breakout on either side of the 90-91 range will determine whether the index can move up to 92-92.50 or fall to 88. The broader trend remains down and a test of 88 is more likely to be seen in the coming weeks. However, whether the fall to 88 will happen from here itself or after a corrective bounce to 92-92.50 remains unclear at the moment.

On the daily chart, an inverted head and shoulder pattern is getting formed. A strong break above 91 is needed to confirm this pattern, though. Such a break will then pave the way for a rise to 92.50 first before the overall downtrend resumes.

The US Institute for Supply Management’s (ISM) Purchasing Managers Index (PMI) and the non-farm payroll are the important data releases to watch this week.

Euro: Crucial resistance ahead

Euro (1.2138) fell sharply on Wednesday to make a low of 1.2058. Comment from Klass Knot, one of the European Central Bank’s (ECB) Governing Council members, stating that the central bank can cut the deposit rates further, if needed, to reach the inflation target, triggered the fall in the currency last week. He has also added that the central bank is closely watching the current strength in the euro.

Although the euro managed to bounce back from the low of 1.2058, it seems to lack momentum. A strong rise past 1.22 is very much needed to bring back the bullish momentum. As long as it trades below 1.22, the short-term outlook is bearish, and the euro can test 1.20 on the downside.

However, 1.20 is a very strong support that can halt the current corrective fall. A fresh rally can be seen from around 1.20, which will mark the resumption of the overall uptrend.

Rupee: Room to strengthen

The rupee broke above the key resistance level of 72.90 last week but failed to sustain higher. The currency reversed sharply from the high of 72.78 and fell to 73.1450 before recovering to close the week at 72.9550. Support is in the 73.15-73.20 region. The 72.90-73.15/20 can be a possible range for the near term.

However, from a bigger picture, as long as the rupee trades above 73.20, the outlook is bullish. A break above 72.90 can take the currency 72.75or even to 72.50 in the short term. The Budget is due on Monday. This will be followed by the Reserve Bank of India’s monetary policy meeting on Friday. Both these events will need close watch to see how it can impact the rupee movement.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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