The US Treasury yields continued to surge last week. The US 10-Year Treasury yield rose and closed above the key level of 1.6 per cent last week.

The market expects a rise in inflation on the back of the US government’s passing of the $1.9-trillion stimulus package last week and the economy opening. This has been a major driver for the recent surge in yields.

Under these circumstances, it will be very important to see what the US Federal Reserve has to say in its monetary policy meeting outcome on Wednesday.

US Fed meeting

The US Federal Reserve’s monetary policy meeting is due on Wednesday. The central bank is likely to keep the rates unchanged.

However, it will be important to see if the Fed changes its stance. Any hint at rate hikes, or any comment on the surging yields or on the inflation outlook will be important to watch.

The surge in the US Treasury yields continues. The US 10-Year Treasury yield (1.63 per cent) closed above the key level of 1.60 per cent last week.

A further rise to 2 per cent is possible from here if the yield manages to sustain the break above 1.6 per cent. It has to fall below 1.5 per cent from here in order to negate the rise to 1.2 per cent and fall further.

The US Dollar Index (91.66) rose to a high of 92.50 and came off from there; 91 is an important support to watch this week.

The index has to sustain above 91 in order to move up again towards 92-93. A break below 91 can drag it to 90, and will keep the index under pressure to break below 90 eventually.

As mentioned last week, the upside can be capped at 93 on the dollar index.

The recent rise above 91 will just be a corrective rally within the overall downtrend.

Dow: Resistance ahead

The US government passing the $1.9-trillion stimulus package and also assuring to make all American adults to be eligible for the Covid vaccine have aided sentiments to remain positive, and took the Dow Jones Industrial Average (32,778.64) higher last week.

The Dow surged, breaking above 32,200 last week, and closed on a strong note. A very crucial resistance is now coming up at 33,000, which will need a close watch now. Considering the over-stretched rally, the chances are high for the Dow to reverse lower from 33,000. Such a reversal can drag the index lower to 32,000 initially and then to 31,000 eventually in the coming weeks.

In case of a strong break above 33,000, the Dow can surge further, and the fall to 32,000-31,000 will get negated.

The price action around 33,000 will need a close watch this week.

ECB outcome

The European Central Bank (ECB) kept the main refinancing interest rates unchanged at 0 per cent. The total quantum of the Pandemic Emergency Purchase Programme (PEPP) and the monthly Asset Purchase Programme (APP) were also kept unchanged at €1.85 billion and ₹20 billion, respectively.

However, the central bank said the pace of purchase under PEPP for the next quarter will be higher than this quarter.

Euro recovers

The euro (1.1953) rose back sharply last week from the low of 1.1836. As long as the currency stays above 1.19, a further rise to 1.200-1.205 is possible in the coming week. However, a strong break above 1.206 is needed for it to become bullish again and negate the fall to 1.175 mentioned last week.

Whether the euro breaks above 1.206 this week or not will be crucial to watch. A decisive break above 1.206 will pave the way for a revisit of 1.21-1.22 levels on the upside.

Rupee: Resistance ahead

The rupee opened the week on a weak note and fell below 73. However, it managed to recover well from the low of 73.29. A high of 72.62 was made before the currency closed the week at 72.7850 on Friday.

The immediate resistance is at 72.6, which is holding well for now. The next important resistance is in the 72.5-72.4 region. The rupee will have to break above 72.4 to strengthen further. As long as it stays below 72.60 and 72.40, a fall to 73 and 73.25 is possible again.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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