Pound At Risk of Losing Ground Against Rupee Over Coming Week

The Pound’s inflation bump rally may be running out of steam.

It has propelled Sterling higher against the relatively robust Rupee since March 15 but the exchange rate is now starting to look a little toppy, at least on intraday studies such as the four chart below.

Given the longer-term trend has seen the opposite: the Rupee steadily appreciating against the Pound, the expectations are for a resumption of that trend lower.

There is not enough evidence to suggest a resumption is occurring now but there are signs which point to the possibility.

The main one is the extra-long four-hour range, circled below, which happened early on Monday morning at the base of the ascending channel.

These sorts of volatile candlesticks, challenging the bottom of the channel, often occur at turning points in the trend, however the fact that it ended higher than it opened (green rather than red) does dilute the bearishness of the signal.

A break below the lows, however, would be a definitive signal of more downside to come, and is our base case scenario for the pair; such a breakdown would probably reach a target of 81.000 based on using the height of the channel to calculate follow on after a breakout, which is the usual method.

Until such a break, however, the exchange rate remains within the ascending channel and in a short-term uptrend.

We would be looking for a break above the extra-long candle’s highs at 82.07 for confirmation of more upside, with such a move expected to reach 82.500 next.

Data for the Pair

The fundamentals favour the Rupee in the next five days as Sterling is at risk of significant weakness following the official triggering of Brexit by Theresa May on Wednesday, March 29.

This is forecast to lead to short-lived bearish volatility for Sterling, according to Kathy Lien, managing Director at BK Asset Manager.

For the Rupee, there is no major data release but the Rupee is, nevertheless, likely to have underlying strength due to a generally strong fundamental outlook.

Strong growth of over 7.0%, a popular, reform orientated government and falling commodity prices are all positive background factors for the currency.

For Sterling, meanwhile, all the commotion will be centred on Theresa May’s triggering of Article 50, probably on Wednesday 29.

The other big Brexit related event will be the response from the European Commission which will also probably occur during this week.

The cost of Brexit may be high as the Commission wants the UK to pay for all its outstanding spending commitments till 2020, which amounts to a bill of 50 billion Euros; the UK does not agree.

Formal negotiations are not expected to begin until the Summer.

Although UK GDP data is out at 08.30 GMT on Friday, March 31, it is just a third and final revision and therefore highly unlikely to surprise.

Mortgage Approvals, also out on Friday are not forecast to move much and thus seem unlikely to have much impact on the market.