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Rupee and Pound Reach Key Pivot: Technicals

Indian Rupee

Image © Ash T Productions, Adobe Stock

- GBP/INR has fallen to a hard floor' at 200-day MA

- After weak bounce ‘bears’ still in control

- Sterling weakened by Brexit chaos, Rupee helped by RBI concessions

The Pound is likely to suffer further declines against the Indian Rupee short-term but we do note the prospect for a possible rebound.

From a technical perspective, GBP/INR looks like it is at a crossroads.

Whilst the downtrend is still intact and our base case, is, therefore, bearish, we also acknowledge the conditions are in place for a possible rebound.

GBP to INR

GBP/INR has fallen steeply to the level of the 200-day moving average (MA) - a potential ‘hard floor’ from which it looks feasible that it could mount a recovery.

Major MAs, such as the 200-day, present a formidable obstacle to trending prices which often stall or reverse after touching them, and this could potentially be the outcome of this encounter.

Another sign that the downtrend could possibly be undergoing a reversal is the price pattern which the market has outlined since the October highs, which looks very much like a three-wave ABCD pattern.

Such patterns look very much like zig-zags. The first wave and last are normally the same length and hint at conclusion. This is almost, though not quite, the case with the ABCD on GBP/INR. Nevertheless, if one of these patterns has finished forming it could herald a new more bullish - or neutral - phase for the exchange rate.

As things currently stand, however, the upside bounce since GBP/INR touched the MA has been too weak to suggest a change of trend and the bullish potential in the chart remains purely inchoate and theoretical.

Overall, the market remains in a bear trend which is forecast to extend subject to a break below the 200-day, confirmed by the exchange rate piercing below the 91.50 lows. This would probably lead to a continuation down to the next target at the 90.80 historic 2015 lows.

The latest decline in Sterling was triggered by reports that the fragile Brexit withdrawal agreement between the E.U. and U.K. might fail to pass into law as opposition to the deal on both sides of the channel mounts.

Several E.U. member states, including Denmark, Belgium and Holland have privately expressed dissatisfaction at the prospect of the UK obtaining some sort of ‘enhanced’ customs arrangement, which could potentially compromise the integrity of the union.

Spain too has weighed in now, questioning the Brexit-deal specifics for Gibraltar which it appears unhappy with. It only takes one EU member state to veto a deal suggesting a higher risk of failure now not just from the UK side but also in getting approval in Brussels.

The fall in the Pound appears to have been exacerbated by a relatively robust performance from the Rupee in the wake of the latest meeting if the Reserve Bank of India (RBI), on Monday, November 19.

Although the RBI took decisions to essentially relax lending requirements for banks, and also make it easier to roll-over existing bad loans the Rupee actually remained quite well supported.

These actions are normally associated with an easing bias and therefore detrimental to a currency but because worst-case-scenario fears of the RBI governor Urjit Patel resigning over his criticisms of government interference never materialised.

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