5-Day Pound vs. Indian Rupee Technical Forecast + Events and Data to Watch

The Pound-to-Indian Rupee exchange rate appears to want to continue appreciating despite a recent pull-back as charts confirm the embers of a recovery may be underway for the pair. 

The GBP/INR exchange rate is forecast to rise according to our analyis of the pair's price charts.

The pair has broken above the major trendline which is a result of the exchange rate's long-term decline since it started falling from its 2015 highs at 105.62.

Trendlines are drawn on charts by analysts in order to help clarify the trend, and now that the exchange rate has broken above this downtrend line it suggests the downtrend may be broken and the pair could be about to enter a new uptrend.

Since the break, however, the exchange rate has disappointed expectations of moving higher, by falling back down to a level of 84.00 Rupees to the Pound, from the 88.00 highs.

We see this as just a correction, however, before the exchange rate starts rising again. So near-term weakness could yet give way to longer-term gains.

The pair may be forming an unfinished abcd pattern on the weekly chart which augurs more upside, to an eventual target of 91.15.

Abcd patterns are like zig-zags, composed of three waves with waves a-b and c-d normally of a similar length.

The length of the a-b wave suggests the current c-d wave should be longer, and will probably rise up to an end target at 91.15.

The Daily Chart

The daily chart shows us some more detail of the correction back from 88.00 to 84.00 which happened after the break above the major trendline.

The correction seems to have adopted the formation of another chart pattern, called an ABC correction.

These are similar to abcd patterns but are corrective in nature, whereas abcd's can be either.

Assuming the pattern on the daily chart is an ABC pattern, it looks like it has probably finished leaving the uptrend ready to resume, and we, therefore, see a possibility of more upside on the horizon.

We look for confirmation coming from a break above the 86.587 highs, with a cautious upside target from there at 87.000.

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Data and Events for the Indian Rupee

Inflation data is often a mover of currencies as it impacts on the interest rate set by the central bank.

When inflation is high the central bank puts up interest rates to bring it down by encouraging saving and making borrowing more expensive.

Higher interest rates tend to lead to a stronger currency because they attract higher inflows of foreign capital from global investors seeking somewhere to put their money where it can earn high interest, with the least risk.

Indian inflation data, released this morning, showed a rise of 0.3% in October from the previous month, with prices rising 3.58%, from 3.28% in September, and above the 3.46% consensus expectation.

The result places inflation right in the middle of the Reserve Bank of India's ideal 2-6% range, suggesting it is neither too high or low in their opinion.

The result is in line with the expectations of Commerzbank Analyst Ulrich Leuchtmann, who said before the event he was expecting 3.5%.

According to Leuchtman a result of 3.5% would not lead him to change his view on whether the Reserve Bank of India will change interest rates at its December 6 meeting.

"We expect RBI to stay on hold at 6% at the last policy meeting for this year on 6-December and maintain a neutral bias," aid Leuchtmann.

This may explain why the Rupee only strengthened marginally after the release - it does not materially change the outlook for interest rates.

The next major release of the Rupee is the trade balance on Tuesday at 12.05 GMT, which is forecast to widen to -10.45bn from -8.98bn US Dollars in October.

A wider trade balance usually results in a weaker currency as it indicates aggregate supply outstrips demand, given exports are paid for in the host currency but imports have to be paid for in the currency of their country of provenance - therefore a widening trade deficit is indicative of lower net demand for a currency.

Data and Events this Week for the Pound

We look for political risks to erupt this week and potentially move the Pound around in volatile swathes of buying and selling.

There are both positive and negative risks for Sterling, with the most positive the inching towards a possible Brexit deal is the most significant.

The Pound gained ground on Friday after the EU's chief negotiator Michel Barnier said that the UK had two more weeks to come up with a solution on the first three conditions for moving onto the trade talks, viz: the cost of divorce, Ireland border and status of EU citizens in the UK.

There is hope about the divorce bill ever since the Prime Minister said she would consider paying a figure of 56bn which is in line with EU demands, however, the other two issues remain outstanding and problematic as far as we know.

Nevertheless, the market seemed hopeful of a solution emerging within two weeks last Friday or the Pound would not have risen.

"If the UK government abides by these demands, GBP could well build-upon a recovery that was given life last month by reports of Ms May's willingness to stump-up £53 bn for a deal," said BNY Mellon senior Currency Strategist Neil Mellor.

Theresa May's Grip on Power

The more negative factors against the Pound are related to the standing of the Prime Minister after a story was leaked to the press over the weekend that 40 Tory MP's said they were prepared to sign a letter to oust Theresa May, which according to Conservative party rules is 8 less than the 48 needed to trigger a leadership contest.

If 48 MP's signed a letter of no-confidence in May then that would increase uncertainty for financial markets and the Pound would drop like a stone, initially anyway.

"Today’s move tells us that the markets are on alert for political risks emanating out of the UK, and if there is a party coup to replace Theresa May then political turbulence is likely to weigh on the pound further," says Cityindex, Market Analyst, Kathleen Brooks, however, she steers clear of signalling a cliff-edge fall for GBP in the event of a leadership contest.

The Passage of the Withdrawing Bill

The other issue this week is the passage of the 'withdrawing bill' through the commons.

In the week ahead MP's will be debating final amendments to the bill, which basically sets the agenda and the rules for what will happen during Brexit. 

One major point of contention is whether the bill should be changed to allow MP's a vote on the final Brexit deal negotiated with the EU.

Advocates of this - from both major parties - argue it would be in the country's best interests as it could be used as the last line of defence against a hard Brexit - that is a Brexit in which no trade deal had been agreed.

Hard Data

From a hard data perspective, the main release in the coming week is inflation data on Tuesday November 14, at 09.30 GMT, with October expected to see a rise of 3.1% compared to a year ago, which would represent a rise of 0.1% from the previous 3.0% result and see inflation hitting a new 2017 peak.

Such a rise in inflation would probably be marginally supportive of the Pound as it would increase in the chance the Bank of England (BOE) will raise interest rates again, perhaps even sooner than previously expected.

Nevertheless, the BOE themselves have forecast inflation peaking at 3.1% in October - but then rolling over - so it would take a sustained rise for several months to really support the Pound - or a shock rise in October of over the 3.1% expectation.

Higher interest rates strengthen currencies because they attract more inflows of foreign capital from global investors drawn by the promise of higher interest returns - and vice-versa with lower interest rates.

Central banks control the base interest rate which all other banks use to set their interest rates.

When inflation is too high central banks raise interest rates to bring prices back down by encouraging saving over spending and discouraging borrowing by making it more expensive.

Another major release for the Pound over the next five days is employment data on Wednesday at 9.30 GMT.

The main focus will not be on the Unemployment rate, however, unless it is widely divergent from estimates, but rather on wage data.

This is because earnings are directly linked to inflation with a pick up in the former leading to a rise in the later.

Therefore a strong pick-up in earnings (Ex-bonus) which were 2.2% previously and are expected to moderate down to 2.1% would help Sterling, and vice-versa for a fall.

The final major release for the Pound is Retail Sales data on Thursday at 9.30.

On a monthly basis Retail Sales both Core is expected to rise from very depressed readings in September of -0.7% and -0.8% respectively, rising to 0.1% for both.

Compared to October last year, however - ie year-on-year -  they are forecast to show a -0.4% fall for Core and -0.7% for headline compared to 1.6% and 1.2% respectively in October 2016.

The data is significant for the Pound because a further contraction in Retail Sales will increase concerns about growth and mean it is less likely the BOE will put up interest rates, resulting in weakness for Sterling.