The Dollar says the Nifty could Rise

Oct 26, 2021

Brijesh Bhatia, Research analyst

Today I'll cover a topic that is very important for a professional trader: The link between the dollar and the Nifty.

This relationship can tell us in advance how the Nifty could move. This in turn gives astute traders good entry points.

Find out why the dollar is signalling a bullishness on the Nifty and how it could play out in the short term.

Watch the video and let me know your thoughts. I would love to hear from you.

Hello viewers. Welcome to the Fast Profits Daily. Myself Brijesh Bhatia.

In this video, we will be discussing about the technical structure of dollar index. Now dollar index is a widely tracked currency index, which indicates that when the prices go higher, it means that the dollar is getting stronger and stronger. When the index falls, it means that the dollar index is getting weakened.

 

Now, if I look at the technical structure, so let's look at the first chart over here which is the daily chart of dollar index.

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If you look at the two red lines on your chart, the one resistance and 93.5 and second at 94.5, we saw that in the recent uptick momentum down the 93.5 was taken out. But 94.5, which was October 2020 high, was strongly resisted in the recent momentum and prices are back towards the lower level of 93.5.

So 94.5 is playing a crucial resistance, which is October 2020 high and if you look at the technical structure of the blue lines over here, this is called broadening bull wave pattern and this is the bearish pattern, which indicates that the bullish momentum is ending and the bearish momentum starts, which is reversal in nature.

So if we locate the 1, 2, 3, 4 and 5 on your screen the numbering, so the wave goes in 1, 2, 3, 4 and 5 and 5 generally triggers the reversal levels. In the same dollar index chart if you look at, we have seen that prices are reversing from 5.

We have seen twice and thrice this level was tested, but in the end it reversed from the resistance zone. So it marks a crucial reversal level.

Second, if look at the green over here 161.8 and as per the bull wave when the fifth high over the fifth wave high is 161.8 of 3rd and 4th in this case, the 161 where was around 94.65 and we turned from around 94.55-94.56 levels. So again, slightly below 161.8 levels and again this is all the strongest level of 161.8. So, again, this is turning out to be a very, very strong a reversal structure.

Now coming onto the targets. Generally the targets are measured when the 1 high and the 4 low is connected, and the line is extended, and the targets are measured. So in this case, the targets comes slightly around 90 level, 90-90.5, which indicates that the dollar index is likely to go down and the dollar is expected to weaken against the other currencies.

We will just go on to check how the oscillators are panning out. So first we look at RSI over here. So if you look at the second chart, it's the same price structure with the RSI.

 

Now, if you look at the RSI, the RSI have always a resistance around over bough zone, which was about 70, and are turning towards the southward momentum, which indicates that the strength is not in the bullish momentum. It's actually in to the bearish momentum and the prices are going down and down.

 

Second, we look at the MACD, the moving average convergence, divergence. Now if you look at it, again the average on the MACD gave a negative crossover. Now the histogram is also going below the integer line, which is the zero line, indicating that the bears are in control of the structure over here.

Hence we believe that the wolf wave pattern, plus the oscillators are indicating that the prices of the dollar index is likely to go down. Now how will it impact on equities and commodities?

Well, when the dollar index weakens, which means the dollar is weakening, rupee appreciates and when the rupee appreciates, FIIs tends to pump in the money into India and it is beneficial to the Indian equity market.

This means that when the monies are infused into the Indian markets they tend to buy the stocks and which means that the buying is expected into the Indian markets and it is positive for Indian equities. So probably a bullish momentum can be on the cards for Nifty and Sensex.

Second, if you look at the gold or the commodity spot, when the dollar index weakens, it is inversely related to gold, so when this index weakens down, gold is expected to go higher because gold is a widely traded commodity, plus dollar index is a widely traded currency index and when these inversely related things happen, which means that the dollar index in our case is expected to go down, gold at the same time, is expected to go higher.

So one should keep a watch on the dollar index. We are expecting 90-90.5 on the dollar index, which will be beneficial. A positive impact on the Nifty or Sensex and as well as gold. So keep a watch on this. This is very, very important to keep a track on dollar index when you are expecting that Indian stock market will tend to continue its bullish momentum and gold, which has come back very, very strongly from around somewhere around US$1,700.

Once the 1,835-1,836 resistance is marked, we might see that the trigger could explode into the gold as well. So keep these levels into the mind and track dollar index to keep a momentum check on to the Nifty and Sensex.

So just signing off. Before a sign off, I request, click on the subscribe button and do not forget to click onto the like and if you think our videos are really helping you out, do comment on how you think our videos are and is it helping you to make profits out of the markets.

Signing off. Brijesh Bhatia.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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