Pound-to-Rupee Rate Forecast in the Week Ahead
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A strengthening Pound has met a potential glass ceiling against the Rupee, can it break through it and deliver stronger exchange rates?
GBP/INR is in an established short-term uptrend which has just reached a major chart ceiling and multiple resistance zone in the 90.00-92.00 Rupee band (see below).
Although the uptrend remains intact, the resistance zone presents a formidable obstacle to further upside and there is a heightened risk that the pair could reverse and start falling.
The zone is comprised of a trendline from the 2015 highs and the 200-week moving average (MA), both of which are tough barriers.
When the exchange rate touches major trendlines and large moving averages it can stall, pull-back or even reverse trend because more sellers enter the market anticipating that very thing.
Many investors also use moving averages to make major trading decisions and so there is often more-than- average supply and demand near them anyway.
Assuming the exchange range rate can break above the zone, confirmed by a move above the 94.00 level, we would expect a continuation up to the next target at 95.00.
After breaking above these levels the uptrend will be reinvigorated and the exchange rate could go even higher.
The 95.00 target is a minimum expectation based on the length of the move immediately prior to the trendline (A), which extrapolated by the golden ratio of its height above the break gives the eventual minimum target (B).
The golden ratio (0.618) is an ancient mathematical constant which explains proportions in the natural world and financial markets.
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Data and Events to Watch for the Indian Rupee
The main releases for the Rupee this week are GDP data for Q3 and Manufacturing Sector PMIs both on Wednesday.
GDP, out at 12.00 GMT, is forecast to rise 6.9% compared to the 6.2% in the same quarter in the previous year, and a higher-than-anticipated result would be expected to be positive for the Rupee since increased growth tends to attract more foreign investor inflows.
The Nikkei Manufacturing PMI, which is out at 5.00, is expected to show a rise to 52.8 from 52.4 previously.
PMI's are surveys of purchasing managers working in manufacturing firms, who are key personnel uniquely placed to provide an insight into the health of the sector. They are seen as an important leading indicator for the economy and growth so can have an impact on exchange rates.
Data and Events to Watch for the Pound
From a fundamental perspective, the most important factor for the Pound in the coming week is the outcome of the extended cabinet meeting held at the Prime Minister's residence at Chequers to heal divisions and decide on a consensus approach to Brexit.
The outcome of the meeting will be crystalised in a speech due to be delivered by Prime Minister Theresa May on Friday, the location and exact time of the speech are yet to be made clear.
The British Pound was seen as one of the better performing global currencies towards the end of the previous week with markets cheering the UK government making progress on their Brexit strategy.
The promise of Conservative party unity on the issue of Brexit is a rare commodity, but this could well be on offer following Theresa May's decision to lock her top team in a room in the English country side and let them out only once agreement had been sought.
Members of Cabinet emerged from the meeting with those on either side of the Brexit divide saying talks were constructive and a unified position had been found.
"GBP is top of the pack by a small margin, as reports suggest the cabinet is closer to agreeing on a unified line on the UK’s post-Brexit relationship with the EU after the Chequers meeting ended late last night," says Adam Cole, Chief Currency Strategist with RBC Capital Markets.
Brexit remains the key story for Sterling and therefore the details of May's speech, and any European response could, therefore, be key.
The issue of UK interest rates will be in focus with the Bank of England's (BOE) Sir John Cunliffe delivering a speech on Monday at 18.00 GMT, in which he may drop hints as to the BoE's stance on monetary policy.
There is now a heightened expectation that the BoE will raise interest rates by 0.25% in May after statements made in the February meeting statement and more recently in front of the Treasury Select Committee indicated BoE members had adopted a more 'hawkish' stance - 'hawkish' meaning members are in favour of raising interest rates at a quickened pace.
If Cunliffe's speech further reinforces a more aggressively hawkish tightening strategy from the bank and a greater chance of a May hike, the Pound will rise, since higher interest rates are supportive of Sterling, because they attract greater inflows of foreign capital drawn by the promise of higher returns.
It is not expected to, however - Cunliffe dissented from raising rates in November and may well still be on the dovish spectrum.
Clearly, if he has become more hawkish it will be a strong indication of voting intentions and push the Pound higher.
"BoE’s Jon Cunliffe is set to speak on Monday following fellow Deputy Governor Dave Ramsden’s scheduled remarks tomorrow.
Given that both dissented against the November rate hike, it will be interesting to see whether they maintain their reservations in the face of the hawkish testimony delivered to the Treasury Select Committee by the Governor Mark Carney and other MPC members," said Investec analysts George Brown and Victoria Clarke.
House price data from Nationwide is out on Thursday at 7.00 GMT and is expected to rise 2.6% in February compared to a year ago and 0.2% from the previous month. Housing leads the economy they say so it is important, but there are not expected to be any surprises in the Nationwide data, so little probable impact on Sterling.
The major economic release of the week is Thursday's release of Manufacturing PMI for February at 9.30 GMT, which is forecast to show a slowdown to 55.0 from 55.3.
PMIs are surveys of key personnel (Purchasing Managers) in a sector and provide a good leading indicator of growth and activity. A result of over 50 indicates expansion and below 50 - contraction.
Construction PMI is out on Friday at the same time and is forecast to come out at 50.7 in February from 50.2 previously.
Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.