Pound-to-Rupee Rate: Tech Forecast, News, and Events For This Week

The Pound-to-Indian Rupee rate continues to slog higher in a recovery rally which has lasted most of the year, but whether it continues or not may depend on whether Brexit risks ease in the week ahead.

The Pound-to-Indian Rupee rate has spent most of 2017 recovering, after bottoming at just below 80.00 Rupees to the Pound, at the start of the year.

Currently, the exchange rate is at around 86.95 after moving slowly over recent weeks, and in the absence of any strong reversal signs, we expect it to continue recovering.

A break above the key 88.47 highs would probably confirm an extension up to a target at 90.00, where selling pressure might come in again, as traders are more likely to close their orders and take profit at a major round-number - thereby increasing supply at that level. 

The MACD is above the zero-line and rising, which is indicative of further strength.

If we look at the daily chart it adds nothing, in particular, because the trend is less clear.

The daily chart below, for example, shows a move up to the late September highs at 88.00 followed by a steady decline down to the early November lows at 84.00, followed by a steady recovery back up to the 87s and the current level just below.

If anything the MACD momentum indicator in the lower pane is not looking particularly strong as it has not really reflected the most recent recovery from the November lows.

Whilst the exchange rate rose quite strongly, the MACD failed to corroborate the rise and remains at a comparatively low level, which indicates the up move lacks momentum and is therefore at risk of petering out.

Nevertheless, that isn't enough evidence on its own to suggest the uptrend is over and we maintain our bullish forecast for prices to rise to 90.00 - subject of course to a break above the late September high.

Data and Events for the Indian Rupee

The main event for the Indian Rupee in the week ahead is probably the interest rate-setting meeting of the Indian central bank, the Reserve bank of India (RBI) on Wednesday.

The RBI is not expected to change interest rates one way or another according to most commentators, if they were going to do anything it would probably be lower rates to support growth, but that isn't going to happen because inflation has been on the rise (going up from 3.3% to 3.6% in October), and likely to quicken, according to DBS bank Economist Gundy Cahyadi.

In addition, they are unlikely to swim against the tide, as most of the rest of the world's central banks are contemplating raising rates.

"Global central banks are, meanwhile, mulling over policy normalisation moves, with the US Federal Reserve expected to hike rates for a third time this year, in December. Against this backdrop, we expect the RBI to refrain from further rate cuts this week and for the rest of FY18," said Cahyadi.

Data and Events for the Pound

The main fundamental drivers dictating price action for Sterling at the moment are political in nature and focused on the twin concerns of how Brexit talks are going, and how stable the government is, and this is likely to continue in the week ahead.

The Pound rose last week on news the deadlock in Brexit negotiations had been broken, and the two sides were close to agreeing on a divorce bill, the Irish border, and citizen rights. Should this be confirmed at the mid-month European Council meeting of E.U. leaders talks will be allowed to move onto the more important subject of trade.

Yet, ultimately nothing has been confirmed and the Pound has risen on hearsay alone so there are risks of disappointment.

There is a possibility more concrete confirmation may be forthcoming in the week ahead when Theresa May visits Brussels to talk 'turkey'.

"Next week, May heads to Brussels to meet with Jean-Claude Juncker and this is her first opportunity to provide the U.K.'s divorce bill offer and to talk about their plans for the Irish border. Then on December 6th, EU ambassadors resume preparations for the summit," says BK Asset Management Managing Director and forex guru Kathy Lien.

The other main political driver impacting on the Pound is the stability of the government.

From a hard-data perspective, the week opens with Construction PMI at 9.30 GMT on Monday, December 3 which will give us insights into how the sector fared in November.

The consensus amongst analysts is that it will rise to 51.0 in November, from 50.8 in October.

Services PMI is on Tuesday at the same time and is forecast to fall to 55.0 from 55.6 previously; this is the most important reading of the week as the services sector accounts for more than 80% of U.K. economic activity.

Analysts at TD Securities think the market is underestimating the sector and a pro-Sterling result beat on expectations could be delivered:

"We look for upside risks to the November Services PMI. Spillovers from optimism in the manufacturing sector (where business-to-business activity has remained strong) as well as from the rest of Europe (where the PMIs and growth are accelerating into year-end) should help support optimism in the sector."

The week ends with the Trade Balance and Industrial and Manufacturing Data out at 9.30 on Friday, December 8.

The trade deficit is expected to widen slightly to -11.5bn in October from -11.25bn and confirm the country's hefty reliance on imports remains intact; something that concerns analysts who believe the Pound could one day have to adjust materially lower in order to balance the situation.

Both Manufacturing and Industrial production are forecast to rise by 0.1% in October; disappointment here could see Sterling end the week in soft fashion.

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