The US dollar index has an important support immediately at 90 and then at 89.40
The US Dollar Index witnessed a sharp fall in the US session on Friday. The trigger for the fall came from the US job numbers released on Friday. The US added just 2,66,000 jobs to its Non-Farm Payroll (NFP) for the month of April. Market was expecting close to 1 million jobs to be added for the month. The previous release for the month of March was also revised lower. Earlier, an increase of 9,16,000 jobs in the NFP was reported for March. This was revised lower to 7,70,000 as per the latest release. The unemployment rate in the US inched up to 6.1 per cent in April, from 6 per cent in the previous month.
NFP numbers disappoint
The NFP numbers failing to meet the market expectation has triggered a sharp fall in the US dollar. That, in turn, saw the risky assets like the non-dollar currencies, equities, surging higher. The US Dollar Index tumbled to a low of 90.19 after the news release and closed the week at 90.23, down 1.12 per cent for the week.
The Euro surged, breaking above 1.21 and has closed at 1.2164, up 1.2 per cent for the week. The Dow Jones Industrial Average surged over 200 points on Friday to close the week at 34,777.76. Gold also gained sheen on the back of the dollar weakness. Comex-Gold ($1,832) had surged above the psychological $1,800 per ounce mark last week. It has room to move up further towards $1,860-$1,870 in the coming days.
The US Dollar Index (90.23) has an important support immediately at 90 and then at 89.40, which can be tested this week. Whether the index bounces from 90/89.40 or not is going to be crucial in deciding the next move. If the index manages to sustain above 89.40, a rise back to 90.50-91 and even higher levels is possible, going forward. In that case, the index can continue to trade sideways between 90 and 92 (narrow) or 89.50 and 93/94 (broad) for some more time.
However, the broader trend remains down and we can expect the Dollar Index to break 89.40 and fall to 88-87 eventually. Whether this fall is going to happen now itself or after some time will have to be seen. As such, the price action at 90 and 89.40 will need a close watch this week.
The support at 1.20 on the euro (1.2164) mentioned last week has held very well. The euro fell to a low of 1.1986 earlier last week and had risen back sharply to close on a strong note above 1.21. Immediate resistance is at 1.22. A strong break above it can take the currency higher to 1.23-1.2350 in the coming weeks. Inability to breach 1.22 from here can drag the euro lower to 1.21 and 1.20 again. The price action at 1.22 will need a close watch this week.
Dow gathers momentum
After struggling to rise past 34,000 decisively for two weeks, the Dow Jones Industrial Average (34,777.76) gained momentum last week to surge well above 34,000. A test of 35,000 is likely this week from where a corrective fall to 34,500-34,000 cannot be ruled out. However, from a bigger picture, as long as the Dow stays above 34,000 now, the current rally may have the potential to take it even up to 36,000 in the coming weeks.
The Indian rupee (73.5150) opened on a weak note with a wide gap-down on Monday last week. However, the weakness did not sustain and the rupee recovered sharply from the low of 74.32 and had closed at 73.5150 in the spot market on Friday. However, the currency had extended rise in the off-shore market after the weak US jobs data release and is currently at 73.30. The rupee has room to strengthen further towards 73.20 and even 73 earlier next week. The level of 73 is a strong resistance for the rupee. As such we can expect the rupee to weaken again from 73 towards 73.50-73.75, going forward.
The writer is a Chief Research Analyst at Kshitij Consultancy Services