Cues from the dollar index.

The dollar index has had a fall of about 10% from its highs of 89, and now has some strong support between 80-70. Let’s take a look at why the area of 80-78 can offer strong support to the index. The 80 mark is 61% retracement of the entire rally from 89 to 75 and also is an area of candle supports. As seen from the charts 78 levels also offers strong support. The accompanying positive divergence on MACD suggests that this level may hold in the coming days.

 

If the index holds on to these supports in the coming days it can bounce up to 83.50 and 84.60 levels, this rise if it materializes can result in some correction in the equity markets, more so in the Indian equity markets such as the NIFTY. So traders need to watch the dollar index carefully. Levels to be watched are 80-78 on the down side below which the index can fall to 75.On the upside bullish traders need to watch 84.60 which can be a resistance. A break-out above this level can lead the index back in the 86-87 regions.