With US retail sales coming in line with expectations, US Atlanta FED increased its current quarter GDP growth expectations to 4.5% from 3.9%. This led to US2Y yield breaking 2.6% and taking it to its highest level since 2008. Now either market has to believe that the current growth in the US is going to sustain in the longer run, which then takes 10Y yield higher. Or the lack of reason to not hike rates in the near term, would lead to further narrowing of the 10-2Y yield spread. The former looks difficult in an environment where the US is going into a cocoon of its own with the trade war and therefore good US data looks likely to result in further narrowing of 10-2Y spread. With EU data bottoming out in June the chances are that the recovery will help EURUSD move towards 1.19 levels. Today Powell speaks at 7-30 PM IST in front of the Senate committee of banking, which could be significant and interesting given the robust US data, trade war and falling 10Y yield.
USDINR 1m NDF is trading 2p left indicating mild offshore selling pressure. Oil fell on news that Trump is seriously considering releasing SPR stocks while US is considering giving minor exceptions to Iran for its oil sale. Technically Brent can move lower to 68.9 levels (61.8% retracement of 80.49 and 61.77) from the current 72.2 levels. CNH looks stable today and has been well supported above 6.70 levels. India bond yields have moved lower on the back of oil at 7.74% which should help INR gains. 68.30 is a strong support and convincing break of the same can bring in another 1%+ kind of appreciation. I would expect a lower break overnight only as during the day RBI continues to buy USDINR to refurbish its reserves. CMP 68.42, Range 68.30-68.50.
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