Pound Strikes Higher Against Indian Rupee, Marginal Bias for More Gains

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- GBP/INR forms bullish reversal and starts rising

- Outlook slightly favours more gains

- Outlook for oil and Brexit headlines key drivers

The Pound-Rupee exchange rate is trading at 92.35 at the time of writing, after rising almost a half of a percent since the start of the week.

From a technical standpoint the outlook for GBP/INR is marginally bullish. The pair is recovering after a deep pull-back from the January highs. Last week we said there was a risk it could continue declining to 88.00, but in the end this never happened and instead the pair found a floor at the level of the 50 and 200-day MAs, rotated and started rising. It is now trading in the 92.30s.

It is too early to say whether this week's recovery is game changing for the broader trend or not but the overall look and feel of the chart suggests a bias to expecting more upside. The strong rally in January, followed by the pull-back in the first half of February and then the start of the move higher this week, looks like an unfinished cycle wave higher, which should probably move up to a target at the 94.00 January 29 highs.

The next major resistance level is the midpoint of the previous downmove at 92.55, otherwise known as the 50% Fibonacci level. This is likely to present the next major obstacle to uptrending prices and once touched could cause a pull-back or even reversal back down. If, however, the pair successfully breaks above it, it will probably move all the way up to the next target at 94.00.

The weekly chart shows how the pair formed a hammer reversal candlestick in the week before after touching down on the 50 and 200-week MAs. This is a bullish sign, especially after GBP/INR found support at the large moving averages. The hammer's bullishness is enhanced if followed by an upweek, so if this week closes higher than it opened, it will be a stronger signal off a continuation higher.

From a fundamental standpoint the main driver for the Rupee will be the price of oil and geopolitical global themes. The currency probably gained some support this week from this news Trump appears to be relaxing his stance on auto-tariffs, which whilst not directly related to India, nevertheless suggests a new more relaxed global trade environment - especially compared to 2018.

Gains may have been offset by a continued rise in the price of oil, however, which is negatively correlated to the Rupee due to the fact India has to import so much of its fuel. Sections against both Iran and Venezuela - both major suppliers of heavy or 'sour’ grade crude variety has driving the market higher.

The merger between OPEC and a rival alliance of oil producers headed by Russia may also be partly behind higher prices. The new, broader, ‘OPEC+’, as it is known, is likely to have even more control over oil prices, suggesting they will remain at elevated levels where they are supportive of producer economies.

Whilst Russia has been criticised for lagging the Saudis in cutting its oil production, suggesting the tentative alliance may not last, the overall interpretation appears to be positive.

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