Technical Analysis

US dollar floats near key level

Gurumurthy K | Updated on May 15, 2021

A bounce from 89.40 can take the dollar index up to 90.50-91 again

It was a volatile week for both the currencies and equities. Equities tumbled during the week but have managed to recover in the later part. The US dollar index and the treasury yields rose sharply after the strong inflation data release on Tuesday. But they failed to retain the strength and declined by the end of the week. Inflation in the US surged in April.

Data released on Tuesday last week showed the US Headline Consumer Price Index (CP) Inflation rising sharply to 4.1 per cent (Year-on-Year) in April from 2.64 per cent in March. The Core CPI surged to 2.96 per cent (YoY) in April from 1.65 per cent in the previous month. Strong inflation numbers triggered a sharp rise in the US treasury yields and in turn took the dollar index higher. The US 10-year treasury yield rose sharply from near 1.60 per cent to make high of 1.70 per cent and the dollar index rose to a high of 90.91 from near 90 after the data release. But both failed to sustain higher and had come off towards the end of the week.

The US 10-year yield has risen sharply over the last couple of week from its crucial support near 1.45 per cent. Intermediate resistance at 1.7 per cent is holding for now. A strong break above it can take the 10-year yield up to 1.8 per cent - a crucial resistance to watch on the upside.

Support ahead for dollar index

The failure to rise past 91 after the inflation data release last week keeps the dollar index under pressure. A test of the important support level of 89.4 looks likely in the near term. However, whether the dollar index manages to bounce from 89.4 or not is going to be very crucial. A bounce from 89.40 can take the dollar index up to 90.50-91 again. It can also keep the index in the broad range of 89.40-92/93 for some more time. On the other hand, a strong break below 89.40 will indicate the resumption of the overall downtrend. Such a break can drag the index lower to 88-87.

Room to rise for euro

The Euro (1.2146) is holding below 1.22. It fell sharply from the high of 1.2182 in the initial part of the week. However, it managed to recover from the low of 1.2051 towards the end of the week. It can test the key immediate resistance level of 1.22 this week. Inability to break 1.22 can drag the euro to 1.21 and lower again. In that case, euro can remain in a range of 1.20-1.22 for some time. Strong support is in the 1.2050-1.20 region. As long as the euro remains above 1.20, the bias is bullish to break above 1.22 and rise to 1.23-1.2350 in the near term.

Dow volatile

It was a volatile week for the Dow Jones Industrial Average (34382.13). The index broke above 35,000 and surged to a record high of 35,091.56 on Monday. However it failed to sustain higher and tumbled to a low 33,555.22 by Wednesday and recovered back to close the week at 34,382.13, down 1.14 per cent for the week. The 33,500 is a crucial support which has held well last week. As long as the index remains above 33,500 a sideways move between 33,500 and 35,000 can be seen for some time. A strong break above 35,000 is needed for the Dow to move up towards 35,500-35,600. The level of 33,000 is a significant support below 33,500. Dow has to fall below 33,000 in order to become bearish.

Rupee near key resistance

The Indian Rupee broadly remained stable between 73.30 and 73.55 most part of the week. On Friday the currency broke above 73.30 and made a high of 73.22 before closing the week at 73.29. The chances are high for the rupee to strengthen towards 73.10-73 this week. However, the level of 73 is a strong resistance which is likely to hold for now. As such, we can expect the rupee to reverse lower from near 73. A pull-back from 73 can take the rupee lower to 73.50 initially. It will also keep the chances high for the currency to weaken back towards 74 levels going forward. The price action near 73 will need a close watch this week.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on May 15, 2021

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