Currency. Will dollar reverse from its high?

The US dollar continued to trade strong and moved up towards 93 last week as expected. The euro, on the other hand, fell towards 1.18 in line with our expectation. However, the US jobs data release on Friday triggered a sharp reversal in the final trading session last week. The US added 8,50,000 to its non-farm payroll in the month of June, beating the market expectation for an addition of 7,00,000 jobs. The May payrolls were also revised higher to 5,83,000 from 5,59,000 reported earlier.

However, the unemployment rate inched higher to 5.9 per cent in the month of June from 5.8 per cent in the previous month. Also, the average hourly earnings rose 0.3 per cent (month-on-month) in June as against the market expectation to rise by 0.4 per cent. The pace of rise in the average hourly earnings (M-o-M) has been slowing down over the last few months. This, coupled with the uptick in unemployment rate, dragged the US dollar from its high on Friday.

Dollar retreats

The US Dollar Index (92.24) moved up towards 93 as expected. However, the index reversed sharply lower from the high of 92.74 on Friday after the US jobs data release. 92 will now be an immediate and important support to watch this week. A break below 92 will indicate a near-term top is in place and drag the index to 91 and 90 in the coming weeks. However, if the Dollar index manages to sustain above 92, a rise back to 93 can be seen again. Also, as long as the index sustains above 92, the chances of a break above 93 and an extended rise to 94 cannot be ruled out in the coming weeks. So, the price action at 92 will need a close watch this week.

Euro: key resistance ahead

The euro (1.1865) broke below 1.19 last week and fell sharply to test 1.18 in line with our expectation. The currency made a low of 1.1807 and has bounced back well from there on Friday.

The Euro has cluster of supports in the 1.1780-1.1750 region, which can halt the current fall. From a long-term perspective, we can expect the euro to see a fresh rally from the above mentioned support zone.

For the coming week, the euro will have to break above 1.19 from here in order to ease the downside pressure. Inability to rise past 1.19 from here can drag the euro lower to test the 1.1780-1.1750 support zone in the coming days. Thereafter a fresh rise can be seen.

Dow gaining momentum

The Dow Jones Industrial Average (34,786.35) has risen further this week. It has a very crucial resistance now in the 35,000-35,100 region.

A strong rise past 35,100 will be needed for the Dow to gain bullish momentum and move up further to 36,000. Such a rise will also be very bullish from a long-term perspective. The price action in the 35,000-35,100 region will need a close watch this week.

On the other hand, if the Dow fails to break above 35,100 decisively and slips below 34,500 again, then a fall-back to 34,000-33,500 can be seen again. However, such a fall looks less probable now as the level of 34,500 can act as a good resistance-turned-support, going forward.

Rupee: Can test 75?

As expected, the Indian rupee fell below 74.40 towards 74.75. The currency declined to a low of 74.8725 and had closed at 74.7450 in the spot market on Friday. However, the domestic currency had recovered in the off-shore market in the US session on Friday following the fall in the dollar index after the jobs data release. The Indian rupee has closed at 74.51 in the off-shore market on Friday.

Important resistances are at 74.40 and 74.30. The Indian rupee will have to break above these resistances to ease the downside pressure and strengthen towards 74 and higher again. Inability to break above 74.30 can continue to keep the rupee under pressure to test 75 in the near term.

On the charts, 75-75.10 is a strong support which is likely to halt the current fall and reverse the move, going forward, in the coming weeks.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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