Dollar Index - 25-Nov-2011

In my previous post on Dollar Index - "What is Dollar Index ?" we got to know what is a Dollar Index & how it would impact the Indian Markets. In the current post would give an update on how is Dollar Index placed & how it can move further.

Charts:

Weekly Chart

• In the weekly charts, Dollar Index is approaching a crucial resistance after it broke a descending trendline on the upside.
• Multiple resistances are seen around the levels of 79.84 to 81 levels.  
• If 79.84 levels are crossed on closing basis then DXY has more strength to reach the 80.50-81, 81.50 levels where it would face strict resistance. If Dollar Index manages to close above 81 then it can head to 83 levels swiftly.
• Indicators: RSI, MACD, Slow Stochastics are all showing strength & indicating bullishness.
• Dow Jones Industrial Average (DJIA) the benchmark index of Equity in US closed below an important support level of 11300. This indicates weakness, the target now on the downside is 10500, 9900. Looking at this, it would be more likely that Dollar Index would breach its resistance & march ahead to 83 levels if not more. 

Euro Zone Trouble:

• Germany - Bond auction for 10 year Government security had just enough takers (Demand was lowest in this year at 1.1). It was auctioned at 1.8%.
• Italy - Yields of 6 Months T-Bills came in at 6.5% compared to 3.35% in end of October. (Highest in the Euro Era). 2 year Zero Coupon Bonds were auctioned at 7.814% compared to 4.628% in end of October. So its becoming costlier for Italy to service its debt. Although the average Maturity of debt is at comfortable level of 7 years. But such high yields can put pressure on the nation. - Taking cues from the auction, the yields on 2 year Government bonds of Italy rose to an all time high of above 8%.
• Portugal - Credit rating Agency "Fitch" downgraded the credit rating of Portugal to "Junk Status" - Main reasons cited are fiscal imbalances, high indebtedness in all sectors and gloomy economic outlook. GDP is expected to contract to 3% by 2013.

Bottom Line: What this means to Indian Equities is - More trouble. If such gloomy picture continues in EZ then it would increase the demand for USD & that would mean more selling of Indian Equities. 
Just remember the basics here - If Dollar Strengthens it would be bad for Indian Equities.