Russia registering its first vaccine for coronavirus lifts risk sentiment
|The IIP contracted 16.6% yoy in June against expectations of a 21% contraction and 33.9% contraction recorded in May. Though there has been a sequential i.e. month on month pick up in industrial output, the pace of recovery from year ago levels seems to quashing any hopes of a V-shaped recovery.
Moreover, as localized lockdowns continue, Corona cases curve takes longer to flatten and pent up demand from lockdown seen in June and July fades, there is a risk of the economic recovery plateauing out. Therefore the pace of recovery in high frequency indicators is what will continue to remain in focus.
News of Russia registering its first vaccine for Coronavirus has lifted risk sentiment. The news came in just post OTC hours which resulted in USDINR selling off in exchange traded futures. Hopes of Republicans and Democrats still managing to reach an agreement on fiscal stimulus has also aided sentiment. There were positive surprises on the data front also. US core PPI rose more than expected. German ZEW economic sentiment also came in better than expected.
Risk assets have continued to rally. We have seen typical risk on correlations getting restored. Safe haven US treasuries and German bunds have sold off. Rise in US nominal rates has caused real rates to rise as well. Gold too has corrected significantly on rise in US real rates. Equities continue to rally with S&P500 close to record highs. USD has strengthened against major currencies overnight.
74.40 is a crucial support for USDINR, break of which can trigger stops leading to a rapid move lower. USDINR pair is likely to trade 74.50-74.85 range intraday. Asian currencies are weak against the USD.
UK Q2 GDP and US July core CPI data due today.
Strategy: Exporters are advised to cover through Risk reversal strategy. Importers are advised to hold with a stop loss of 75.35. The 3M range for USDINR is 73.60 – 75.90 and the 6M range is 73.00 – 77.00.
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