Indian Rupee Extends Advance against Sterling following Better-than-Expected Manufacturing Data, More Gains Likely According to the Charts

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- GBP/INR continues bearish short-term trend

- Stronger-than-expected data helps trend fall

GBP/INR is trading at 90.69 at the time of writing after declining over 1.5% over the course of the past week amidst an ongoing bout of strength being enjoyed by the Rupee.

The pair has gone lower over recent hours following the release of stronger-than-expected manufacturing and industrial production data on Tuesday morning, which showed a substantial rebound in activity.

Indian Industrial Production rose by 2.4% in December compared to a year ago - a substantial recovery from only 0.5% previously. Manufacturing increased by a similar 2.7% from -0.4% lows previously.

Indian Inflation data, released at the same time showed a slowdown to 2.05% in January from 2.19% previously and was lower than the 2.48% analyst’s estimates. This continues the metric’s downwards trend.

Concerning the outlook, from a technical perspective we see the bearish response to the data continues the already established short-term downtrend.

The pair has reached a major support zone which is likely to slow progress lower and could even potentially result in a bounce higher or reversal.

The support zone is made up of the 50-day moving average (MA) at 90.73, the mid-point or 50% fibonacci level of previous move at 90.89 and the 200-week MA at 90.74.

It is too early to know whether the short-term trend will bounce and reverse at this support zone - or whether it will simply continue, breaking through to the downside.

Because the short-term trend is down our default stance is to expect an extension but due to the triple-layer thickness of the support zone, we would advocate waiting for confirmation from a break clearly below the zone - confirmed by a move below 90.15 - before forecasting more downside to a potential target at 88.00.

The weekly chart provides little additional clarity on the direction of the next move and shows the pair moving in a broadly up-and-down sideways range since April 2018.

At the same time, the expectation of a breakdown to the key 88.00 lows, does not seem far-fetched either.

Such a move would also then raise the spectre of the formation of a bearish head-and-shoulders (H&S) topping pattern having formed, with major downside implications.

Yet the H&S hypothesis is far from guaranteed and the pair would first have to break below the triple support layer at the current market level before considering it as a realistic future possibility.

Momentum is bearish overall and supports a move down to 88.00. The RSI was significantly lower at the recent 94.00 peak than at the 94.00 peak in April.

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