Technical Analysis

Will the bullish bias remain for dollar index this week?

Gurumurthy K BL Research Bureau | Updated on October 23, 2021

A near-term dip to 93 and then a fresh rise looks more likely

The US dollar index fell marginally last week. The index remained below 94 almost all through the week. However, stable movement above 93.50 for most part of the week indicates lack of strong selling interest in the green back. The dollar index has closed at 93.61 — down 0.35 per cent for the week.

The week ahead is packed with a slew of important data releases that can impact the dollar movement. It will start with the key Consumer Confidence data on Tuesday. It will be followed by the third quarter GDP growth numbers on Thursday. Thereafter to end the week, the Personal Consumption Expenditure (PCE) – the Federal Reserve’s inflation gauge and the Personal Income data will be out on Friday.

Dollar Index: Room for dips

The US dollar index (93.61) looks weak in the near-term. At the moment, it is getting support at 93.5. But on the charts, the chances are high for it to break and dip to 93.20-93 in the near-term. However, from a bigger picture, the level of 93 is a strong support which is likely to hold. Also, the slow pace of fall below 94 indicates lack of strong sellers in the market.

As such, we can expect the dollar index to remain above 93 and move back up towards 94 and 94.50 in the coming weeks. On the upside, 94.50 is a strong resistance. A strong break above it will strengthen the bullish momentum and will pave way for a fresh rise to 95.50-96 over the medium-term.

Overall, 93-94.50 can be the range of trade for the short-term. Within this, the bias is bullish to see an upside break above 94.50 and a rise to 95.50-96. The chances of the rise to 96 will be reduced only if the index declines below 93. Such a break can drag it to 92. However, the outlook will turn completely bearish only on a strong fall below 92.

Yields surge

The US 10Yr Treasury (1.64 per cent) yield did not fall to 1.5 per cent as was expected. Instead, it rose back above 1.6 per cent and surged, breaking above the key resistance level of 1.65 per cent. The yield made a high of 1.7 per cent on Friday and had come-off from there to close the week at 1.64 per cent. As long as the 10Yr Treasury yield sustains above 1.6 per cent the outlook is bullish to test 1.75 per cent in the short-term. It will also keep the chances alive of seeing even 2 per cent on the upside over the medium-term. As being mentioned in this column over the last couple of weeks, the 10Yr yield will have to fall below 1.5 per cent in order to reverse the uptrend and become bearish for a deeper fall.

Euro: On a corrective bounce

The euro (1.1647) has managed to get a strong follow-through rise above 1.16 last week. The currency made a high of 1.1669 on Tuesday and then remained stable between 1.1620 and 1.1660 for the rest of the week. Near-term support is at 1.16. As long as the euro sustains above 1.16, there is room for a further rise to 1.1680-1.17 and even 1.1730 in the near-term. However, the broader trend is still down. The upside can be capped at 1.17-1.1730 for now. As such, there is a strong likelihood for the euro to reverse lower again from the 1.17-1.1730 resistance zone and keep the overall downtrend intact. Such a reversal will keep the euro under pressure to revisit 1.15 levels and fall even to 1.14 over the medium-term. In case the euro manages to break above 1.1730, the upside can extend up to 1.18. It will need a decisive rise past 1.18 to negate the risk of seeing 1.14 on the downside, and move back up to 1.20 levels again.

The European Central Bank (ECB) meeting is scheduled for Thursday. The outcome of this meeting will need a close watch as it could impact the movement in the euro. It will be interesting to watch if the ECB will follow the US Fed in its plans to trim asset purchase anytime soon.

Rupee strengthens

The Indian rupee recovered sharply breaking above the key 75 level. It made a high of 74.69 of Friday but gave back some of the gains to close the week at 74.8950 in the spot market. In the offshore segment, the currency had declined further and closed at 74.98. The resistance at 74.75 is holding well. A strong break above 74.75 is needed for the rupee to strengthen towards 74.50. But the price action on the chart suggests lack of momentum to strengthen decisively above 74.75. This keeps the chances high for the rupee to weaken back towards 75.25 and even 75.40-75.50 in the coming weeks.

As mentioned last week, from bigger picture, 74.50 is a crucial resistance. The rupee will have to breach this hurdle decisively to become bullish completely.

Published on October 23, 2021

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