Dollar stuck in a narrow range

The US dollar also continued to trade volatile in its 92-93 range last week. The index jumped on Tuesday after the release of US inflation data. U.S. Consumer Price Index (CPI) inflation hit 5.32 percent (year-on-year) in June from 4.93 percent in May. The US core CPI jumped to 4.45 percent (year-on-year) in June from 3.8 percent the month before.

The dollar index rose sharply from nearly 92 to 92.81 after the data was released. But US Federal Reserve Chairman Jerome Powell’s comment on the policy pushed the dollar index down again on Wednesday. Powell during his testimony last week reiterated that the central bank still has a long way to go in making policy changes.

Dollar, Euro: at key levels

Overall, the dollar index continues (92.71) to hover in the 92-93 range over the past two weeks. As mentioned last week, a break below 92 will be bearish for the dollar index. Such a break will take him to 91-90 in the future.

However, if the index goes above 93, it will be bullish to see a test of 94.

The euro (1.18), on the other hand, seems to be struggling to strengthen and experience a sharp rise above 1.19. Very crucial support is at 1.1750. A break below will be bearish for the euro. Such a breakout may drag it towards 1.17-1.16 in the future. Price action this week will require close monitoring.

As such, whether the dollar index is going to break above 93 or not and the euro will hold above 1.1750 or not, will be very crucial to watch in the coming days. This in turn will determine the direction of movement in the market.

Treasury yield: margin of decline

The 10-year US Treasury yield (1.29%) initially rose last week. It peaked at 1.42% on Tuesday after the release of inflation data. However, he had pulled away sharply from that above following comments from the Fed chairman on policy. The 10yr has room to test 1.25% -1.2% – a significant support area this week. This support could fit on its first test. As such, a corrective rebound from this support area may take the yield to 1.45% in the coming weeks. Subsequently, a new fall is again possible.

Dow: resistance holds

The Dow Jones Industrial Average (34,687.85) tested its crucial resistance zone of 35,000 to 35,100 last week, but failed to break through. It hovered around 35,000 throughout the week and fell sharply on Friday to close 0.5% lower for the week. Significant support is found in the 34,500-34,400 region which will require close monitoring this week. As long as the Dow holds above 34,400, there is a good chance that the index will break above 35,100 immediately from here on its own.

Such a breakout will pave the way for a further rise to 36,000 and even higher levels in the weeks to come. But if the Dow drops below 34,400, a drop to 34,000-33,500 can again be seen.

In this case, the Dow Jones may continue to consolidate in the broad 33,000-35,000 range for some time to come. This will also delay the increase to 36,000 mentioned above.

Rupee: stays within a narrow range

The Indian rupee (74.56) remained stuck in a narrow range of 74.40 to 74.65 throughout the week. A breakout on either side of this range will be a clear indication whether the rupee may strengthen to 74.20 or weaken to 74.80 this week. We can look for a range of 74.40-74.65 (narrow) or 74.20-74.80 (wide) in the short term. From a medium-term perspective, 75 is strong support. As long as the Rupee remains above 75, the outlook is bullish for it to strengthen towards 74 and even higher in the coming weeks. The national currency will only be under pressure if it drops below 75 from here.

The author is Chief Research Analyst at Kshitij Consultancy Services


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