Technical Analysis

Will US dollar mark a turnaround this week?

Gurumurthy K | Updated on June 07, 2021

A short-term rise to 91-91.50 is still possible within the overall downtrend

The US dollar index is managing to hold well above its key support level of 89.50. The index rose to a high of 90.63 but had come off sharply from there on Friday. US non-farm payroll (NFP) data failing to meet market expectation dragged the dollar index lower on Friday.

The US added 5,59,000 jobs to its non-farm payroll for the month of May. Though this number was higher than the 2,78,000 jobs added in the previous month, it failed to meet the market hopes for an increase of 6,50,000 in the NFP. The slow pace in jobs growth will continue to keep the US Federal Reserve stance on both the stimulus and interest rates front unchanged. This triggered a pull-back in both the US dollar and Treasury yields on Friday.

The US dollar index (90.13) is managing to hold above its crucial support level of 89.5 but is not gaining momentum to see a sustained rise above 90. This keeps the near-term outlook mixed. As long as the index remains above 89.50, the possibilities are still alive to see a rise to 91-91.50 in the coming weeks. However, the broader trend is down. As such, the upside could be capped at 91.50 for now.

A reversal from 91-91.50 and a subsequent fall below 89.50 can pull the index to 89 initially.

A further break below 89 will pave the way for a deeper fall to 88-87 over the medium term.

The US 10-Yr Treasury Yield (1.55 per cent) has declined below its intermediate support levels of 1.6 per cent and 1.57 per cent. As long as the yield trades below 1.6 per cent, the chances are high for it to move down further towards 1.5-1.45 per cent in the near term. This can keep the dollar under pressure.

Euro – range-bound

The resistance at 1.2250 continued to hold well last week and the euro fell to test 1.21 as expected.

It tested a high of 1.2254 and fell sharply to a low of 1.2104. However the currency managed to recover from this low on Friday to close the week at 1.2167. Broadly 1.21-1.2250 seems to be the short-term range.

However, considering the possibilities of a rise to 91-91.5 in the Dollar index, the chances of the euro breaking below 1.21 and falling to 1.2050-1.20 cannot be ruled out in the coming weeks. We will have to wait and see. However, the bigger picture is bullish and a fall below 1.20 is unlikely. A fresh rise from 1.20 will see the euro breaking above 1.2250 and rising to 1.2350 initially and then much higher eventually.

Dow: Bullish

The Dow Jones Industrial Average (34,756.39) witnessed a short-lived fall below 34,500 on Thursday last week. The index made a low of 34,334.41 and had risen back sharply from there. The broader view is bullish.

The Dow can test 35,000 in the near term. Inability to breach 35,000 can drag it to 34,000. This will keep the 33,500-35,000 range intact for some more time. However, the bias is bullish. As such the Dow is expected to break 35,000 and rise to 36,000 eventually in the coming weeks.

Rupee weakens

The Indian Rupee remained below 72.30 as it weakened towards 73 as expected. The currency fell to a low of 73.2950 on Wednesday and recovered from there to close the week at 73 on the spot market.

However, in the off-shore market, the Indian rupee managed to recover further following the weakness in the US dollar after the US jobs data release. It has closed at 72.87 in the off-shore segment.

The 72.80-72.75 zone will be an immediate resistance, which will have to be broken in order to strengthen further towards 72.50 and 72.30 again. Inability to break above 72.75 can drag the rupee lower towards 73 and 73.30 again. The price action in the 72.80-72.75 region will need a close watch this week.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on June 06, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor