The Pound-to-Rupee: Tech Forecast, News, and Data for the Rest of the Week

The UK Autumn Budget is one of the highlights of the coming week for the Pound as it is seen by many as a major test for the May government; the Rupee, meanwhile, is at risk of turning bearish on foundering growth fears. 

The Pound-to-Rupee is forecast to rise according to an analysis of its charts.

After peaking at 88.47 in September, GBP/INR disappointed upside expectations by falling back down to a level of 84.00 Rupees to the Pound.

We see this as just a correction before the exchange rate starts rising again.

The pair is possibly forming an unfinished abcd price pattern, which suggests it will rise to a target at 90.85 as leg c-d completes.

We have revised down our target for the end of c-d from a previous target of 91.15 after noting a strong resistance line drawn at the April 2015 lows.

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 the aforesaid 90.85.

The Four Hour Chart

Zooming into the four-hour chart and we can see that the pair is in an established short-term uptrend, which is expected to move higher subject to confirmation from a break above the 86.39 highs.

Such a break would reinvigorate the uptrend and lead to an extension up to the next short-term interim target of 87.00.

Data and Events for the Indian Rupee

There are no major top-tier releases for the Rupee in the coming week and the only data out for the currency is on Friday, when Foreign Reserves (period ending Nov 17) data is released, and expected to come out at $399.4bn from $400.5bn previously.

Also out are Bank Loan growth for November 10, which is forecast to show a rise of 7.2% and Deposit growth, which is forecast to rise by 9.2% - both based on a comparison with a year ago.

Recently Swiss bank Credit Suisse turned bearish the Indian Rupee, especially in the medium-term, after they suggested rising oil prices, a lack of growth momentum and a rising trade deficit would all weigh on the currency going forward.

Data and Events for the Pound

The most significant event of the week ahead is the Autumn Budget statement on Wednesday, November 22 which will prove important in terms of the credibility of the UK Government, and the economy's potential growth trajectory.

From a currency perspective, the stability of Theresa May's Government is key; markets like stability and recent months have shown the Government to be anything but.

The budget is often a 'danger time' for Governments as popular support has often proven to be attuned to the success of a budget - recall George Osborne's 'omni-shambles budget' of 2012 where support for the Cameron Government slipped notably on perceived policy blunders presented in that budget.

"It is critical not only for the Government’s self-imposed fiscal goals (2% deficit by 2021, balanced by mid-2020s) but the survival of May’s Govt. due to mounting political pressures domestically and around Brexit," says Tim Riddell at Westpac.

"A successful budget could relieve some pressures with a sound fiscal hand, support struggling parts of the population and strained public departments (NHS, education, security, et al,) and even allow for a firmer approach towards Brexit," says the analyst.

Also of importance to the Pound is whether the budget is growth-friendly or not - if it is, it could help strengthen the Pound.

There is a possibility the budget could include more generous public spending, especially on housing, and if so, this has the potential to boost the Pound.

Increased public spending tends to increase economic activity, which can generate growth, inflation, and then higher interest rates.
Higher interest rates tend to boost the Pound by attracting more capital inflows from foreign investors seeking somewhere to park their money where it will earn higher returns.

"The chancellor has come under increasing pressure to deliver a popular ‘big and bold’ budget that includes increased spending as a means of reviving spirits in the struggling and divided government," says a briefing from TD Securities.

The politics of Brexit could also continue to impact on Sterling as EU leaders are scheduled to meet to discuss whether progress in divorce proceedings has been sufficient to allow discussions to move on to the all-important future trade relationship.

"In the near term, UK politics will likely be the main driver of GBP. In fact, GBP’s reaction to UK politics and our Brexit stress tracker is rising again," says Yujiro Goto of the Global FX Strategy desk at Nomura.

Although the size of the divorce bill remains a key sticking point there are signs the two sides are moving closer to a middle ground following reports from EU council head Donald Tusk that he found recent discussion with Theresa May surprisingly positive.

Any announcement of an agreement or being close to an agreement on the divorce bill would be extremely positive for the Pound.

The main hard data release is public spending figures for October at 9.30 GMT on Tuesday, November 21.

Public Sector Net Borrowing which is the difference between what the government earns in revenue and what it spends is expected to rise to 6.6bn, however, recent results have generally undershot expectations and a lower-than-expected amount might support
Sterling marginally by providing the Chancellor with more room to manoeuvre in his budget on Thursday.

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