US GDP contracted 32.9% in Q2 (Apr-Jun) in annualized terms. It was the sharpest contraction ever recorded. However, the consensus estimate itself was -34.5% and the market had largely factored this in.
The markets were spooked by the Jobless claims rising by more than expected I.e. 1.4mn. Continuing claims at 17mn were also higher than expected. Jobless claims have been higher than 1mn for 19 straight weeks. The first stimulus' benefits shall expire tomorrow and with the Congress still deliberating the second package, markets are nervous about the jobless claims spiking sharply over the next few weeks if no consensus is reached.
The US yields dropped post the data. 10y yield fell 5bps to 0.53%. Risk sentiment turned negative. USD weakened against majors with Euro and Sterling reclaiming 1.18 and 1.30 respectively. The Dollar index has fallen in 9 out of the last 10 sessions and is at its lowest level in last 2 years. Equities too used the disappointing data as an excuse to shed some froth.
New 10y GOI benchmark security will be auctioned today. Post market we have the domestic June core sector data, GST collection in July and fiscal deficit data. USDINR is likely to trade in 74.50-74.85 range. Asian currencies are trading stronger against the USD.
US President Trump has floated a notion of postponing the elections (due to be held in November) on concerns over malpractices in mail in voting. There is no precedent of the elections having been postponed in the past and it can't be done without the approval of both the houses of the Congress (one of which i.e. the House of Representatives at present is controlled by the Democrats)
There was some verbal intervention in the Yen today as it approached close to 104.
Strategy: Exporters have been advised to cover at lower levels only through option strategy. Importers are advised to hold maintaining a stop loss of 75.00 or cover through risk reversal option strategy. The 3M range for USDINR is 73.60 – 75.90 and the 6M range is 73.00 – 77.00.
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