Dollar Index correction positive for global stock market

Dollar Index corrected over 6% since the start of the year 2016 and is currently trading at 93.00 levels. During the start of the year 2016, both FOMC and BOJ changed their policy rates.

US Fed hiked its interest rate while BOJ turned to the negative interest rate. And since the start of 2017, both Dow Jones and Nifty rose over 14%.

Historically, the Dollar index has the negative correlation with the stock market. Negative correlation implies that when Dollar Index goes up world stock market comes down and vice-versa.

Any major correction is seen only below 92.13 levels and if happens this will be the first indication that world market is preparing for another round of sharp rally in months to come. And India will not be excluded out of this rally. Technically, in Nifty, which broadly gauges the growth in India, this really is possible only above 10200 levels.

FOMC & BOJ unchanged policy rate decision helping dollar index down

In the preceding week’s policy meet also, the Fed kept its benchmark interest rate unchanged in a range of 0.25% to 0.50%. It also projected two rate hikes this year than four estimated earlier. However, its policy statement tweaked possibly for another modest rate hike in coming months.

Bank of Japan also surprised the market by keeping interest rate and another stimulus unchanged. This is helping Dollar Index down.

The US Fed raised concerns about global slowdown as the main cause to keep its interest rate unchanged. Also, there is increased demand for Yen, which is considered as safer currencies due to the prevailing negative interest rate.

Concerns over China’s economy have eased somewhat while crude oil prices have rebounded sharply from 13-year lows during the same period. All these cues are supportive to the world market and are expected to do so in near future.

Dollar Index Technical suggesting for more correction below 92.13 levels

Now let’s analyses the Dollar Index that tracks the strength of the dollar against a basket of six major currencies. This will give some insight on the major trend which world market may follow in next couple of months.

The dollar index broke continuation triangle pattern which started from 30 March 2016 and currently trading on verge of previous swing low of 93.62 (CMP- 93.02) on daily basis.

This formation is giving the clear picture for the more bearishness in the dollar index, and any breakdown below this triangle may bring decent fall in U.S dollar.

A more conservative target could 92.13 levels, based on the smaller triangle pattern. However, if the price does break the 93.60 line on upside then Dollar index looks to enter again in pullback zone and it may return back to around 94.50-95.00 levels zone.

A major impact of the correction in Dollar index on the Indian market is that it will help Indian indices, both NSE and BSE to rally. Now Nifty is trading below a very crucial resistance of 10000 levels. However, technically Nifty resistance is seen at 10200 levels.

Any move over and above this level will result in the sharp rally in days to come and with it, if dollar index corrects, will give the additional reason for such rally.

About Author

Naresh Kumar Sharma

Naresh is an Expert Financial Advisory at Raghunandan Money. When it comes to studying markets, Naresh loves decoding stock prices, analyzing data, and understanding market trends. He has a deep knowledge and flair for both fundamental and technical analysis which makes him one of the most reliable experts in Raghunandan Money. Naresh is involved in training and writing informative blogs and articles on equity, commodity, traders, and investors.