Pound-Indian Rupee Outlook: The Next Upside Targets

Image © Natanael Ginting, Adobe Stock

- GBP/INR extends short-term uptrend

- Market structure suggests further upside to come

- Fading India-Pakistan tensions could offer INR support this week

GBP/INR is trading at 93.67 at the start of the new week as Sterling looks to build on the 1.0% gain made in the week prior. A stronger Pound was the primary driving force behind the pair's move after Brexit no-deal fears diminished amidst expectations there will be a delay rather than a hard landing.

The Rupee meanwhile fell after the outbreak of conflict between India and Pakistan in Kashmir, in which two Indian fighters were shot down caused a geopolitical incident which weighed on emerging market risk-taking amongst investors.

From a technical standpoint, the outlook for GBP/INR remains bullish with the pair still recovering after a pull-back from the January highs. It may be forming a broader three-wave ‘abcd’ pattern which, if true, would indicate a move up to the 97s, though it is a little early to be confident that that is the case.

GBP/INR successfully broke above the 92.55 midpoint of the previous down-move (50% Fibonacci), and successfully rallied up to the next target stipulated in our last week’s analysis at 94.00.

A break above the Feb 28 highs at 95.02 would probably provide the necessary confirmation to enhance confidence in a continuation higher to a target at 97.00, based on the extension of the ‘abcd’ pattern. These patterns are like three-wave zig-zags, where waves a-b and c-d tend to be of a similar length.

The pair has been falling after peaking on February 27 and 28 when it formed a rare ‘tweezer top’ Japanese candlestick pattern at the highs. These often indicate trend reversals, however, it is still too soon to confirm a change of trend and until the pair moves lower it remains technically in an up-trend.

The pair also moved down out of the oversold zone at the same time increasing the bearishness of the pattern. Nevertheless, these remain short-term rather than long-term bearish patterns and their implications may be limited.

The 50-day MA is about to cross above the 200-day MA and if it does it could form a ‘golden cross’ which is a very bullish sign for the pair.

The Indian Rupee: What to Watch this Week

The Rupee showed volatility last week as a result of the border conflict between India and Pakistan. Having fallen in the early stages of the skirmish, INR recovered after Pakistan agreed to return the captured Indian pilot it was holding - a move, which eased tensions between the two countries.

Tensions appear to have eased still further since the release of the pilot, suggesting a positive outlook to the quarrel which could well prove positive for the currency over coming days

There are no real significant domestic economic releases in the week ahead for the Rupee butTuesday sees the release of Nikkei Services PMI for February, at 5.00 GMT, which is forecast to rose by 52.5 from 52.2 previously. A beat on expectations could be marginally positive for the currency, while a miss could weigh.

From a global context, we will be watching oil prices: the Rupee is sensitive to oil prices to which it is negatively correlated. The benchmark WTI Crude index is trading at $56.66 per barrel at the time of writing, up 1.54% on the day after the news of a shutdown of the Nigerian Bonny Light export terminal.

The Rupee is sensitive to oil prices because India has to import almost all its oil so price affects the raw supply of INR sold to purchase the imports while costlier oil prices tend to weigh on India's economic performance.

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