The Pound vs. Rupee Rate Retains Upside Slant
The GBP/INR exchange rate could be supported this week as a previous uptrend tries to reassert itself.
The Pound-to-Indian Rupee exchange rate broke above a major trendline at the end of September before pulling-back down during October and November; it has now fallen to the level of the trendline which is providing support where once provided resistance.
This support will be difficult for the pair to break below because increasing numbers of buyers are likely to enter the market at the level of the old trendline seeing it as an opportune place to open bullish long orders since the exchange rate is expected to bounce and eventually rise.
As such overall we see a slight upside bias supporting a continuation of the uptrend higher.
The break above the trendline in September was a very bullish signal and as long as the exchange rate remains above it, the pair is likely to trade with a bullish edge.
However, the sell-off has been quite sharp, so we would ideally wish to see the whole amount of the pull-back recovered and the September highs at 88.47 breached before forecasting any further gains.
Such a move would probably extend to 91.35 - a target calculated by assuming the move is unfolding in an ABCD pattern (labeled in turquoise on the chart).
ABCD patterns are made up of three waves and look like zig-zags, with waves A-B about the same length as C-D.
For C-D to reach equality with the length of A-B the exchange rate would have to rise to 91.35 - our upside target.
News, Events, and Data for the Rupee
The main releases for the Rupee in the coming week are on Friday, November 10, at 12.30 GMT, and include Foreign Exchange Reserves for the period till November 3, which are expected to fall to 398bn from 399bn.
FX Reserves are indicative of central bank activity since they increase or decrease as the central bank buys and sells currencies in the markets, often so as to keep their own currency low, in order to support the country's export competitiveness.
Deposit Growth and Bank Loan Growth are out at the same time and are forecast to show 9.8% rise and 7.7% respectively in the period up until October 27.
Overall the fundamental outlook for the currency is balanced with relatively high levels of foreign investment and domestic growth, as well as a reform orientated government supportive of the Rupee, but a counter-cyclical central bank, more likely to cut rather than raise rates, and falling inflation pressures, negative for the currency.
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News, Events, and Data for the Pound
Above: Michel Barnier and David Davis. (C) European Commission.
Last week saw the Bank of England (BOE) take the momentous step to raise interest rates for the first time in 10-years.
Yet no sooner had the rate hike been announced than the market moved on to the next topic of discussion, which is whether or not the hike was a one-off or a part of a series.
The main determining factor appears to be Brexit uncertainty - if talks go smoothly the BOE is more likely to raise rates again - if not then they will probably err on the side of caution and leave the one rise until a clearer picture of what post-Brexit Britain will be like emerges.
Remember the rule of thumb is higher interest rates = a stronger Pound.
"We agree that a deal is the most likely outcome, and based on this we believe that market expectations for a cumulative 0.5% of additional interest rate rises by mid-2020 look low. Rather we think the MPC would like to follow a path similar to that of the Federal Reserve, which has raised rates by a cumulative 0.75% since its initial hike in December 2015," says Pimco Analyst Mike Amey.
Brexit negotiations commence once again in the coming week with all eyes turning to Friday's press conference to be hosted by the UK's David Davis and the EU's Michel Barnier for clues on progress.
Markets will want to see signs of progress that will allow the progression of talks from issues surrounding the divorce to that of trade. Of particular concern is the securing of a transitional deal, widely expected to last two years.
Businesses want certainty and the transitional period will be critical to providing the stability required to make investment decisions.
“Given the Government’s ambitious timetable, to agree on a transitional period early next year and the future relationship altogether by next October, it is crucial for the second phase of talks to start in January,” says Andrew Wishart, UK Economist at Capital Economics.
All in all, this is to say that in the week ahead news about Brexit will remain a high priority for currency dealers.
As far as the hard data front goes, it is a relatively quiet week with no tier one releases on the radar.
The first release is the BRC Retail Sales Monitor released just after midnight on Tuesday, November 7.
This will provide an up-to-date snapshot of the most recent retail sales activity.
Next, we have Halifax House Prices out at 08.30 on Tuesday and is followed by the House Price Balance from the Royal Institute of Chartered Surveyors, just after midnight on Wednesday, November 8.
On Friday Industrial and Manufacturing Production data for September is released at 9.30, with the former expected to come out at 0.3% versus 0.2% previously, and later suggesting a 0.3% versus 0.4% previously.
The Trade Balance is released at the same time and is expected to show the deficit narrow to -12.8bn from over -14bn previously.
Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.
