Indian Rupee Tipped to Extend Advance on Sterling over Coming Days

Image © Natanael Ginting, Adobe Stock

- GBP/INR is in full bear mode as it cracks lowe

- More losses are expected after trendline break

- The Rupee to watch oil prices this week

The Pound-to-Indian Rupee exchange rate is trading at 89.65, at the time of writing (10.00 GMT), after recovering from the 88.95 open after a spike in crude oil prices hurt the Rupee. Despite the rebound, we expect the exchange rate to eventually resume its downtrend in the week ahead, with bear targets situated first at 87.90, and then 84.00.

The pair has just broken below a key trendline drawn from the March/April lows. A break below a trendline is a strong signal of more downside to come. Usually, the follow-through after a break is equal to, or 61.8%, of the move immediately preceding the break, labeled ‘x’ in the chart above.

The recovery this morning is probably only a temporary bounce-back to the underside of the trendline before the dominant downtrend resumes. These sorts of moves are quite common occurrences after trendline breaks and are called “throwbacks” by technical analysts. They are actually opportunities to rejoin the downtrend at low risk.

The bear trend is likely to continue down to the next target at the August lows first and then possibly a target even further down at 84.00.

The monthly chart adds further evidence of a bearish reversal. In October the market formed a bearish ‘gravestone doji’ candlestick pattern which was followed by November’s sell-off - an extremely bearish combination.

The pair also formed a bearish pivot swing lower at the same time after price action revolved around the October high and broke below the September lows. These three-month revolutions are strong indicators of a reversal in the medium-to-long-term trend.

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The Indian Rupee: What to Watch

A major driver of the Rupee in the week ahead is likely to be the price of crude oil as this is a major influencer of the Rupee. Oil has risen at the start of the week after reports Russia and Saudi Arabia tacitly agreed to support productions cuts in order to help buoy sinking prices.

Although only speculation and rumour at this stage most analysts believe a cut of circa 1 million barrels a day will be agreed at the OPEC meeting, on Thursday.

Indeed, this seems to be the minimum for avoiding further price declines on oversupply fears, according to New York’s Energy Management Insitute:

“Unless OPEC and its non-OPEC partners decrease production by 1 million barrels per day or more at the Dec 6 meeting, the market is going to yawn at the meeting and likely send prices lower.”

A key event for the Rupee could be the meeting of the Reserve Bank of India (RBI) on Wednesday at 9.00 GMT. Although India is the fastest growing economy in the world at the moment, price pressures have eased of late, and this suggests the RBI will not need to increase its key policy rate from the current 6.5%, at the December meeting. Higher interest rates tend to appreciate currencies because they attract and keep greater inflows of foreign capital.

“Although GDP growth decelerated in Q3, India still has one of the most rapidly expanding economies in the developing world of late. However, price pressures have eased in recent months (top chart), and are likely a roadblock to a more rapid pace of rate hikes on the part of the central bank, along with more moderate growth,” comment Wells Fargo in a note to clients.

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