Indian Ruppee Could Soon Turn Tide on the Pound

- GBP/INR may be nearing a turning point in the trend

- Further upside is capped by 200-week MA

© cherryandbees, Adobe Stock

GBP/INR has carried on rising, as we had forecast, and has now reached our upside target at 92.00.

The pair formed a triangle pattern on the daily chart in late Jan early Feb (see below) which then broke out to the upside. By extrapolating the height of the triangle at its tallest point higher by the golden ratio (0.618) we established an upside minimum target of 92.00.

The exchange rate subsequently rose to meet the target as we had forecast. Now it is met we suggest there is a possibility of a correction or even a reversal of the short-term trend lower.

Firstly, triangles are often the penultimate move in a trend which means given there has now been the breakout there is an increased chance the short-term uptrend has finished.

Secondly, the MACD momentum indicator in the lower panel of the chart is diverging with price action, suggesting a lack of momentum in the most recent up move (see daily chart above). Divergences often follow corrections or reversals.

Finally, the pair has reached the 200-week moving average (MA) which is a formidable obstacle to further upside.

Large moving averages act as formidable obstacles on charts because many investors use them as their primary decision-making tool and this increases selling pressure around them.

Sometimes wholesale reversals occur at the level of MAs but it is too early to say whether this will happen with GBP/INR.

Currently, despite all these warning signs the uptrend still remains intact, and in the absence of evidence of any decline in the exchnage rate itself, our first position muct be for it to extend.

Given the warning signs mentioned above, however, we would place a higher-than-usual bar for a continuation higher, and ideally wish to see a clear break above 93.00 for confirmation of a clearance above the MA, with the next target at 94.00.

Any pull-backs would be expected to find an initial floor at the 2015 lows at 90.90. 

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Data and Events to Watch for the Rupee

It is a quiet week for markets in the run-up to easter and the Rupee is no exception. 

The few data releases which are scheduled for release are unlikely to create volatility for the currency. 

The first main release in India is the government budget deficit in February, which currently stands at over -6.7 trillion Rupees, and is released at 12.30 GMT on Wednesday, March 28.

Data out on Thursday includes bank loan growth, foreign exchange reserves and deposit growth at 12.30, and infrastructure output and external debt out at 13.00.

Data and Events to Watch for the Pound

Overall it is a relatively quiet week for the Pound on the calendar and the most likely source of volatility will probably be the ongoing Brexit debate.

The Pound strengthened last week after a transitional agreement was agreed by the EU in Brussels, which will now see the UK extend its stay by 21 months after the March 2019 deadline, on special terms, whilst a comprehensive trade deal is hammered out.

Brexit headlines are of course impossible to predict as they are generated by politicians and we will be monitoring the newswires for any potential points of interest.

From a purely hard data perspective, the main release is the third estimate of Q4 GDP on Thursday at 8.30 GMT, although the consensus sees little chance of a change from the second estimate of 0.4% growth quarter-on-quarter.

"The more significant interest for next week’s publication will come from the national accounts detail released at this time," says Investec of the GDP release. This will include revisions to data on household income and personal finances in general, which affect overall consumer spending, the biggest driver of growth for the economy.

Should growth be downgraded unexpectedly we would certainly expect a soggy end to the shortened week for the Pound.

Current account data for Q4 is also out on Thursday, March 29, at 09.30, and is forecast to show the deficit widening to -24.0bn from -22.8bn previously.

Traditionally the current account was always seen as a major influence on currency levels but now there appears to be little empirical evidence of a link, so we do not see much volatility arising from this release.

The CBI Distributive Trade Survey for March is out on Wednesday, Mach 28 at 10.00 GMT and will provide the latest data on the retail sector.

"Launched in 1983, this widely followed survey covers questions on sales, orders, stocks, general business situation, employment trends and internet sales," says the CBI website.

Other March data includes Gfk Consumer Confidence, which forecasts to remain at a -10 reading the same as February.

Investec, however, sees a chance of a lift to -8 in March because of rising wages, less job uncertainty, easing inflation, the agreement of a Brexit transition deal and "the uncharacteristically “Tiggerish” Chancellor at his inaugural Spring Statement.

Other data in the week ahead includes mortgage approvals on Monday at 8.30, Nationwide house prices on Thursday at 6.00 (watch for a negative result as this would make two negative months in a row and be bearish for Sterling); business investment on Thursday at 8.30, consumer credit at the same time and mortgage lending also at the same time.

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