Pound-Rupee Outlook: Sterling Still Biased to Trend Higher but Hitting Tough Ceiling

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- GBP/INR hits major resistance zone and pulls back

- Uptrend remains intact and could push higher

- Rupee to me moved by global risk trend and trade war

The Pound-to-Rupee exchange rate is trading at around 88.24 at the time of writing after falling 0.63% last week and then a further 0.61% this week.

Despite these declines, studies of the charts suggests a bullish bias persists as the uptrend remains intact and the ‘trend is your friend’ as the old saying goes.

The 4hr chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair declining within a steady uptrending sequence of rising peaks and troughs.

It has reached a minor trendline and is now at risk of breaking below it, which would compromise the uptrend and bring its continuation into doubt.

As long as it remains above the minor trendline, however, the pair is biased to extending higher, and a break above the 89.64 highs would signal an extension up to a target at 91.00.

A break above the red major trendline would be an extremely bullish sign and a ‘game-changer’ for the pair, as it would negate the very bearish head and shoulders (H&S) pattern which has formed on the weekly chart (see below).

Alternatively, a break below the 87.33 September 12 lows would flip the short-term trend bearish again.

The daily chart tells a similar story. It shows how the pair turned and started rallying at the July 30 lows.

Given the established trend is now up, a break above the highs and the red trendline would open the way for a move up to a daily chart upside target at 92.00.

The daily chart is used to give us an indication of the outlook for the medium-term, defined as the next week to a month ahead.

The weekly chart shows the bigger picture of how the pair has formed a bearish H&S pattern at the highs which initially broke down but then stopped falling at the end of July and started a recovery.

This recovery has clawed its way back up above the 'neckline' for the pattern at its base which is a bullish sign, however, to negate the bearish pattern altogether, the pair would have to break back above the red trendline at around 90.00.

Such a move would then see the pair rise up to a target of 94.00.

Yet the pair has pulled back after forming a ‘shooting star’ candlestick last week, and the fact the shooting star formed at the level of the 200-week MA suggests the exchange rate found resistance too strong and has fallen back as a result.

The H&S is still technically ‘active’ so a break back below the July 30 lows is still possible and would probably see a continuation down to a target at 80.75, the official target for the H&S based on its height.

The weekly chart is used to give us an indication of the outlook for the long-term, defined as the next few months.

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The Rupee: What to Watch

The main driver of the Rupee in the week ahead is likely to be trade war news and macroeconomic trends.

Global markets are currently trading lower after the ‘body blow’ of poor PMI data in Germany and the Eurozone which showed a deeper-than-expected decline in the manufacturing sector activity in September.

The news is likely to weigh on the Rupee, especially if it is replicated in other major countries and regions, which is likely because of the interconnectedness of the modern global economy and supply chains.

The outlook for trade between Beijing and Washington has not improved much and a major breakthrough is not expected anytime soon. President Trump recently made it clear he wanted a “complete deal” not an interim deal with some agricultural purchases added on, and this will make a deal harder to achieve.

Yet the supposed negative reports that Chinese delegates left the U.S. early on Friday after snubbing a courtesy visit to farms in Montana and Nebraska, was actually not what happened - it turned out the U.S. actually canceled the visits themselves, suggesting the relationship is not as bad as some feared.

The fact it is UN week with summits all week in New York suggests world leaders will be on their best behaviour and geopolitical risk may ease - something which could support EM and the Rupee.

The generous corporate tax cut enacted by the Indian government to kickstart growth last week pushed the Rupee higher but it may not continue as the effects are probably now mostly all priced into the exchange rate.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

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