Technical Analysis

Dollar, Treasury yields surge

Gurumurthy K | Updated on August 07, 2021

Strong jobs data release triggers the sharp rise at the end of the week

Last week, the picture was looking weak for the US dollar. It was mentioned in this column that the US Dollar Index can break below 92 and fall towards the lower end of its 89.50-93.50 range and the Euro could move up to 1.20 initially and 1.22-1.23 eventually. But the strong US jobs data released on Friday had turned things around. The dollar index has surged above 92 and the euro has tumbled below 1.18 again.

Strong job numbers

Data released on Friday showed that the US added 943,000 jobs in its non-farm payroll in the month of June. This was much higher than the market expectation for an increase in the range of 700,000-850,000.

The previous release for the month of May was also revised sharply higher to 938,000 from the initial release of 850,000. The unemployment rate fell sharply to 5.4 per cent in June from 5.9 per cent a month ago.

Strong job numbers took the US Treasury yields sharply higher on increased anticipation that the US Federal Reserve will have room to consider announcing tapering its asset purchase in its September meeting. The rise in yields supported the dollar index also to move up sharply.

The US Dollar Index (92.77) rose sharply and closed well above 92 on Friday. The strong rise has reduced the danger of seeing a fall to 90-89.50 mentioned last week.

This has also increased the chances of seeing a rise to 93.50 and even 94 in the coming days. 94 is the next crucial resistance which will need a close watch.

The dollar index will now have to fall below 91.75 decisively in order to turn bearish and fall to 91-90 levels.

The US 10Yr Treasury yield (1.30 per cent ) surged 7 basis points (bps) last week and has closed on a strong note. The yield has taken good support in the 1.20 per cent-1.15 per cent range over the last few weeks. A further rise from here can take it up to 1.45 per cent in the coming days.

The Consumer Price Index (CPI) inflation data release on Wednesday will be important to watch.

A strong inflation number can support yields to move up further sharply from here.

Euro tumbles

The Euro (1.1761) failed to break above 1.19 last week and fell sharply below 1.18 on Friday. The currency has closed the week on a weak note. Inability to get a strong follow-through rise and break above 1.19 has turned the outlook bearish. As long as the currency remains below 1.18 now, there is a strong likelihood of it falling to 1.17-1.16 on the downside in the coming weeks. The chances of seeing 1.20 and 1.22/1.23 mentioned last week stand negated now.

Dow Jones at crucial juncture

The Dow Jones Industrial Average (35,208.51) oscillated up and down around 35,000 all through the week before closing decisively above 35,000 on Friday. Immediate and important resistance is at 35,250.

The bias is bullish to break above 35,250 and test 36,000 on the upside. But in case the Dow fails to break above 35,250 immediately and declines below 35,000 decisively, a fall to 34,250-34,000 is possible. The price action at 35,250 will need a close watch this week.

Rupee support

The Indian rupee (74.1550) broke above 74.20 and strengthened last week towards 74.08 before reversing lower again to close the week at 74.1550. The chances are high for the rupee to open with a wide gap-down on Monday following the sharp rise in the dollar index in the US session on Friday. However, on the charts, rupee has series of supports at 74.30, 74.45 and 74.50. As such, the currency will have to fall below 74.50 decisively in order to come under pressure. Such a fall below 74.50 can drag the rupee lower to 74.60-74.80 in the near term. However, as long as the rupee remains above 74.50, the outlook will still remain bullish as seen from the charts. As such, the chances are still high for the rupee to break 74 and strengthen towards 73.80 and even higher levels in the coming weeks as long as the rupee trades below 74.50.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on August 07, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like