The US D ollar I ndex held well above its crucial support level of 89.4. The index remained broadly stable above this support all through the week except for the spike to 90.44 on Friday. However, the Indian rupee remained strong all through the week and rose to a high of 72.3150 before closing the week at 72.4450 on Friday, up 0.54 per cent for the week. The major development happened on the Chinese front. The Chinese yuan rose 1 per cent last week against the US dollar, breaking above an important long-term resistance.

The level of 6.4 was a major long-term resistance for the Chinese yuan (6.3675). The currency has broken this level decisively and has closed on a strong note last week. From a long-term perspective, this could lead to further strength in the Chinese yuan going forward. As long as the yuan stays above 6.4, it has room to strengthen further towards 6.3-6.25 in the coming months. This can aid the rupee also to remain strong against the US dollar over the medium term.

Rupee at intermediate resistance

The Indian rupee has an immediate resistance at 72.30 which has held very well last week. There is room for the rupee to strengthen further towards 72.20 and even 72 from here. But for that, it has to stay above 72.50. Else the chances of that rise immediately will get reduced and the rupee can weaken towards 73 in the coming weeks. However, the medium-term view will still remain bullish. The rupee can strengthen back in the coming months in line with the strength in the Chinese yuan after this short-term corrective fall.

Strong equities

The rally in equities also can also support the rupee and yuan to remain strong against the US dollar. The Shanghai Composite Index (3600.78) has risen above a crucial resistance level of 3525 and is now bullish to test 3800 on the upside in the coming months. Intermediate resistance is at 3650. On the domestic front the Nifty (15435.65) can also surge to record highs if it breaks above 15450 decisively.

The US equities are also strong from a medium-term perspective. The Dow Jones Industrial Average (34,529.45) has risen and closed above 34,500 on Friday. If the Dow manages to sustain above 34,500 a further rise to 35,000 – the upper end of the 33,500-35,000 range is possible this week. Thereafter the price action near 35,000 will need a close watch to see if the index can break above it or not. Inability to break above 35,000 can continue to keep the Dow inside the 33,500-35,000 range. However, the broader bias is bullish and the Dow is likely to breach 35,000 eventually and rise to 36,000 over the medium term.

Stable dollar

Barring the spike to 90.44 on Friday, the US Dollar Index (90.06) remained relatively stable last week. The first support at 89.40 is holding well. The next important support is at 89.20. As long as the index sustains above these support, a rise to 91-92 is still a possibility. However, the broader trend is still down. As such the dollar index is likely to break below 89.20 and fall to 88-87 eventually over the medium term. Whether this fall will happen from here itself or after some more consolidation between 89.20-91/92 is not clear at the moment.

On the data release front the US Institute of Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) data release is on Tuesday. Then market’s much watched Non Farm Payroll (NFP) and the unemployment rate data will be released on Friday.

The Euro (1.2133) is facing resistance near 1.2250 now. An intermediate dip to 1.21-1.2080 is possible this week. But thereafter a fresh rise to 1.23-1.2330 that will keep the broader bullish view intact. The 1.2330-1.2350 is a crucial resistance. The price action near 1.2350 will need a close watch to see if the euro can surge breaking above this hurdle or will see a reversal. If Euro fails to break 1.2350 immediately, it can then remain sideways between 1.20 and 1.2350 for some time. However, the broader view is bullish. As such euro is likely to breach 1.2350 and surge higher eventually from a medium-term perspective.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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