INR update: Trade war escalates further as locally growth slows

US-China trade war appears to be in a headlock but the match continues and so will the risk off sentiments across asset classes globally. US not agreeing to postpone the implementation of fresh tariffs is a sign of further escalation which is reflected in USDCNH today morning. EU and Japan both appear to be slowing down faster (retail sales data) while the US economy continues to show more resilience than expected. The risk off sentiment plus stronger US economy accompanied by hard brexit related anxiety should continue to boost the greenback against G7 and EMs.

Weekly closing in EURUSD last week below 1.1050 (at 1.0989) should take the pair towards 1.06 with support at 1.0860. Similarly a weekly close in GBPUSD below 1.1975 should indicate that hard brexit is a consensus expectation which should result in the pair getting sold for a 3-4% kind of movement.

USDINR continues to follow USDCNH. Local sentiments are negative considering the slowdown in GDP (Apr-June growth came in lower at 5% against expectations of 5.7%). Lower bond yields now reflect lack of growth rather than controlled inflation and might not result in bond inflows as risk of fiscal slippages increase gradually during the year. USDINR should now not go below 71.70 which is a good 50p lower from current levels making it difficult to initiate fresh longs here. 72.30 should support for the day with 72.50 as the next resistance. Range for the week 71.70-72.50++. CMP 71.23, Range for the day 72.00-72.30. I would be more comfortable buying USDINR near 71.85 levels with stop below 71.70 for a move to 72.50.