INR update: US economy's relative strength; No hard Brexit for now?

If contraction in US manufacturing ISM on Tuesday (at 49.1) showed that the US is also slowing down, yesterday’s services ISM at 56.4 debunked that interpretation for the economy in general. Therefore the manufacturing slowdown which looks like a global phenomena could be more to do with a slowdown in global trade while the robust services PMI indicates the relatively better shape US economy is in. This makes cutting rates for the FED even more difficult with the markets pricing in a near 100% chance for September FOMC while the economy giving signals of it not being as weak; preventing the FED from ushering in a rate cut cycle. The same doubt does not extend to the European economy (which undoubtedly is on a very weak footing) but the ECB is being careful so as to not signal a weakness in confidence and making recession a self fulfilling prophecy. The ECB meets on 12^th Sep next week where a rate cut is a significant possibility which does not seem priced into EURUSD as yet.

Price action and political developments seem to suggest that the risk of a hurried hard brexit on 31^st October has been averted. The short covering seems to be complete with GBPUSD rallying 4 biggies this week. A weekly close below 1.2287 should make the pair a short again, with a stop above 1.2360 for a move towards 1.21 levels again.

USDINR continues to follow USDCNH and EM basket. Risk sentiments across have improved in the last 2 days. USDINR has moved lower from 72.40 to 71.70 for most of this week and today being a Friday we might see a 38 to 50% retracement of this down move taking the pair back to 72.05. Broad range should be 71.35-72.25 while for the day range could be 72.05-71.65. CMP 71.72.