The US dollar continued to trade volatile within its 92-93 range last week as well. The index surged on Tuesday following the US inflation data release. The US Headline Consumer Price Index (CPI) inflation rose to 5.32 per cent (Year-on-Year) in June from 4.93 per cent in May. The US Core CPI surged to 4.45per cent (YoY) in June from 3.8 per cent in the previous month.

The dollar index rose sharply from near 92 to 92.81 after the data release. But the US Federal Reserve Chairman Jerome Powell’s comment on the policy dragged the dollar index lower again on Wednesday. Powell on his testimony last week reiterated that the central bank has a long way to go for making any changes in its policy.

Dollar, Euro: At key levels

Broadly, the dollar index is continuing (92.71) to oscillate within the 92-93 range over the last couple of weeks. As mentioned last week, a break below 92 will be bearish for the dollar index. Such a break will drag it to 91-90 going forward.

However, if the index breaks above 93, it will be bullish to see a test of 94.

Euro (1.18), on the other hand, seems to be struggling to gather strength and see a strong rise past 1.19. A very crucial support is at 1.1750. A break below it will be bearish for the euro. Such a break can drag it to 1.17-1.16 going forward. The price action this week will need a close watch.

As such whether the dollar index is going to break above 93 or not and Euro is going to hold above 1.1750 or not, will be very crucial to watch in the coming days. That will in turn set the direction of move in the market.

Treasury yield: Room to fall

The US 10 Year Treasury yield (1.29 per cent) rose initially last week. It made a high of 1.42 per cent on Tuesday after the inflation data release. However, it had come-off sharply from this high following the comments from the Fed Chairman on the policy. The 10 Year has room to test 1.25 per cent-1.2 per cent - an important support zone this week. This support could hold on its first test. As such a corrective bounce from this support zone can take the yield up to 1.45 per cent in the coming weeks. Thereafter, a fresh fall is possible again.

Dow: Resistance holds

The Dow Jones Industrial Average (34,687.85) tested its crucial 35,000-35,100 resistance zone last week, but failed to break above it. It hovered around 35,000 all through the week and fell sharply on Friday to close 0.5 per cent lower for the week. Important support is in the 34,500-34,400 region, which will need a close watch this week. As long as the Dow sustains above 34,400 the chances are high for the index to break above 35,100 immediately from here itself.

Such a break will pave way for a fresh rise to 36,000 and even higher levels in the coming weeks. But if the Dow breaks below 34,400, a fall to 34,000-33,500 can be seen again.

In that case the Dow can continue to consolidate in the broad range of 33,000-35,000 for some more time. It will also delay the rise to 36,000 mentioned above.

Rupee: Stays in a narrow range

The Indian rupee (74.56) was stuck in a narrow range of 74.40-74.65 all through the week. A breakout on either side of this range will give a clear cue on whether the rupee can strengthen to 74.20 or weaken to 74.80 this week. We can look for a range of 74.40-74.65 (narrow) or 74.20-74.80 (broad) in the near term. From a medium-term perspective, 75 is a strong support. As long as the rupee remains above 75, the outlook is bullish for it to strengthen towards 74 and even higher in the coming weeks. The domestic currency will come under pressure only on a fall below 75 from here.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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