The US dollar and the US Treasury yields continued to rise last week, and continue to retain their momentum.
The Dollar Index rose, breaking above the key level of 91, and the US 10-year Treasury yield surged to revisit 1.60 per cent level as expected.
The strength in the dollar has dragged the euro below the key psychological level of 1.20. The euro is now under pressure and might fall further as the strength in the dollar can sustain for some more time.
Comments from US Federal Reserve Chairman Jerome Powell on the US inflation on Thursday boosted the rise in both yields and the dollar.
Powell said inflation in the country is likely to go up on the back of the economy opening up.
He, however, added that it will be temporary and the Fed will continue to wait before changing its monetary policy stance. Powell also acknowledged the surging yields, but did not raise any concern about it.
The US Dollar Index (91.99) surged, breaking above the key level of 91, as expected, last week. Indeed, the upside has extended well beyond the mentioned level of 91.50. However, as mentioned last week, 92-93 is going to be a crucial resistance zone.
A pull-back from this zone will keep intact the broader downtrend that has been in place since March 2020.
A reversal from the 92-93 region can take the dollar index lower to 91-90 initially. It will also keep the index pressured on the downside to test 88-87 from a long-term perspective.
If the Dollar Index breaks above 93 decisively, it will signal a trend-reversal, and the view of seeing a fall-back will get negated. As such, the price action in the 92-93 region will need a close watch.
The US 10-year (1.57) Treasury yields managed to hold well above its intermediate support level of 1.40 per cent and surged back again. The level of 1.60 per cent was also tested again in line with our expectation.
This level is very crucial to watch this week. Inability to break 1.60 per cent (on a closing basis) can drag down the 10-year Treasury yield to 1.40 per cent. A strong rise past 1.60 per cent will keep the uptrend intact and open the doors to test 2 per cent on the upside.
The euro (1.1913) fell last week, breaking below the important 1.202-1.200 support zone. The break has dragged the currency lower to 1.19 in line with expectations. The immediate outlook is bearish. Resistance will now be in the 1.2000-1.2050 region.
The current downmove can extend up to 1.180-1.175 in the near term. But, thereafter, the euro can move up again towards 1.20 and even higher over the medium term.
The Dow Jones Industrial Average (31,496.30) made a low of 30,547.43 on Thursday, but recovered back sharply and closed above 31,000 for the week.
The level of 31,650 will be an important and immediate resistance to watch this week.
A strong break above it will ease the downside pressure. Such a break will then pave the way for a further rise to 32,000-32,200 this week. If the Dow fails to breach 31,650 and reverses lower again, it can fall below 31,000 to test 30,000 on the downside.
The level of 30,000 is an important support. A break below it will confirm a trend-reversal and drag the Dow to 29,000-28,000.
The rupee (73.0150) opened the past week with a wide gap-down and made a low of 73.78 last Monday.
However, it managed to recover sharply and thereafter broke above 73, giving back most of the loss. The rupee made a high of 72.5875 on Thursday.
But the US Dollar Index surging above 91 and the euro falling sharply below 1.20 towards the end of the week dragged the rupee lower again to close below 73 on Friday.
The short-term view is bearish for the rupee; 72.60-72.50 will be a good resistance that can cap its strength this week.
As long as the rupee trades below 72.50, the chances are high for it to weaken towards 73.20 and 73.50 this week.
The level of 73.50 can be a good support for now, from where the rupee can recover back to 73.20-73 again.
The writer is a Chief Research Analyst at Kshitij Consultancy Services