Indian Rupee Strength Forces GBP/INR Back down to Key 88.00 Neckline
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- GBP/INR in downtrend and with bearish pattern
- Break below 88.00 ‘neckline’ key to extension lower
- Brexit to drive Sterling and election news the Rupee
The Pound-Rupee exchange rate is trading at 90.82 at the time of writing, after falling 0.3% over the course of the past week.
The pair now appears to be in a short-term downtrend after declining all through March. Given the old adage that ‘the trend is your friend’ we see more declines on the horizon as probable.
From a technical perspective, the outlook is bearish. The pair has formed a large head and shoulders (H&S) reversal pattern composed of a higher high: ‘the head’ and two slightly lower peaks either side: ‘the shoulders’.
A break below the neckline at the base of the pattern, at 88.00, would provide confirmation of a deeper decline down to a target at roughly 80.00, equivalent to the height of the pattern extrapolated lower.
But the exchange rate has still not reached the neckline and is currently being supported by the 200-week MA in the 90.90s. It would have to break clearly below this large obstacle before more downside would be expected.
A clear break below the 89.60 lows is likely to confirm clearance and open the way down to the next target at the 88.00 neckline. A break then below the neckline - on a closing basis - would probably provide confirmation of deeper declines.
The short-term downtrend through March which is clearly visible on the daily chart is also quite bearish, although, recently the market has plateaued, and a clear break below the 89.60 lows would be required for confirmation of a continuation of the downtrend to the next station lower at the H&S’s neckline at 88.00.
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The Indian Rupee: What to Watch
The main fundamental drivers of the Rupee in the week ahead are likely to be speculation of the outcome of the Indian general election, which begins on Thursday April 11 and ends on May 19; inflation data, which is out on Friday and rising oil prices since India has to import most of its oil and it is a major component of the country’s balance of trade.
Recently the Rupee has benefited from opinion polls, showing the governing NDA party continuing to enjoy an overall majority, and therefore, are likely to be reelected. The latest poll on April 8, conducted by Times Now - VMR showed the NDA winning 279 seats and an overall majority of 7. Many previous polls had shown a hung parliament but the last 4 have shown NDA majorities, possibly indicating a turnaround in voter sentiment.
https://economictimes.indiatimes.com/markets/forex/investors-double-down-on-rupee-yuan-longs-fade-poll/articleshow/68613908.cms
A reelection of Nahendra Modi’s NDA party would support the Rupee as currency's tend to favour the status-quo, and Mohdi's government is widely held as being a pro-market movement.
On the hard data front, the next major release for the Rupee is Indian inflation data for March, which is forecast to show a 2.8% rise from 2.6% previously, when it is released at 13.00 BST on Friday, April 12.
Inflation has been steadily falling since the beginning of 2018 and any further weakness could also pull the Rupee down, especially if it is core inflation - i.e not fuel or food. This is because it could result in lower interest rates which are highly correlated to the currency.
Industrial and manufacturing production for March is out at the same time as CPI, and forecast to show a 2.1% rise, up from 1.7% in the previous month.
Crude oil is surged to above $64 per barel on the back of reports of a drawdown in inventories and fears around Libyan production after an insurgency led by a former Libyan military officer Khalifa Haftar threatened to disrupt supply, even though the Eastern part of the country where most of the oil is produced appears to be under control and production largely unaffected.
Higher oil prices increase the country’s trade deficit because most of India’s fuel has to be imported, and this also has a negative knock-on effect on the Rupee.
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