GBP to INR Rate Forecast to Maintain an Upside Bias
The Pound has been trading higher against the Indian Rupee of late on reduced political risk in the UK and newfound optimism about Brexit negotiations.
The longer-term trend, however, is down due to the Rupee’s strong fundamentals.
The look and feel of price action since the move up from the April lows lends itself to a bullish interpretation as it seems to have formed a bull flag pattern.
These are composed of a ‘pole’ and then a consolidation in a sort of ‘flag’.
The flag consolidation part now appears to have finished and the exchange rate is breaking out to the upside. According to technical theory it should move the same length as the ‘pole’ extrapolated higher from the consolidation.
The exchange rate has now also pierced a trendline suggesting an upside breakout, which if it can hold above the trendline will lead to further positive gains.
MACD is above the zero-line indicating the daily chart is now in a short-term uptrend.
We expect the exchange rate to rise to 84.000 Rupee’s to the Pound as the flag unfolds. After that it may encounter stiff resistance from the 200-day moving average at 84.390.
Note that the month of May tends to be seasonally negative for the Rupee, according to analyst Hans Redeker of Morgan Stanley, so the currency may trade with a downside bias during the month which supports our bullish GBP/INR technical outlook.
The positive economic outlook and generous interest rates in India are also supporting carry trade inflows from investors borrowing in a low-interest rate currency and investing in a higher interest rate currency, and thus profiting from the difference.
There is no tier one data out from India this week but there are Purchasing Manager Survey’s as is the case with most of the world.
Manufacturing PMI is out at 06.00 BST on Tuesday, May 2, and Services is out at the same time on Thursday.
USD reserve data is out at 12.30 on Friday, May 5.
Data for the Pound
A new month means fresh data in the form of the trio of UK Purchasing Manager Surveys (PMI) for Manufacturing, Services and Construction.
These are the most timely economic data releases available and will give us a view of how the UK economy performed in April.
Both Manufacturing, on Tuesday at 9.30 GMT, and Construction, out on Wednesday at the same time, are forecast to fall by two basis points to 54.0 and 52.0 respectively.
Services, out on Thursday at 9.30, is expected to fall more steeply to 54.5 from 55.0 previously.
The recent downturn in UK economic activity means markets will be watching whether the trend continues with PMIs.
“Markets are looking for a bit of a pull-back in the PMI’s, and we’re just modestly more optimistic on balance,” said TD Securities in a review of the week ahead.
We doubt that disappointment will feed into any sustained pressure on Sterling though as the currency appears to be more concerned with global investor dynamics and domestic politics at present.