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Pound-Rupee Exchange Rate Falls Over 1.5% in a Day After Dramatic Decline in Oil Strengthens Rupee

Oil prices help fuel Rupee rally

- GBP/INR falls over 1.5% in a day after oil decline boost Rupee

- Breaks below trendline and poised to fall even further

- August lows a key watershed level

GBP/INR is trading in the 89.80s at the time of writing after having fallen almost 1.5% on Tuesday, following a massive drop in the price of crude oil - to which it is highly sensitive - which drove up the value of the Rupee.

WTI crude oil collapsed by over 4.0% on Tuesday and has fallen by 7.7% since the start of the week. It reached a new price low in the $47s a barrel on Tuesday. Since India has to import most of its oil the decline was actually positive for the Rupee.

The volatile oil market fundamentals are reflected by a severely deteriorating technical picture. The GBP/INR pair recently broke below a key trendline and Tuesday’s decline reinforces this break.

GBP to INR weekly chart

It has now also broken below the key 88.70 November 30 lows greening-light an open road lower for market bears which could now lead to a decline to at least the 86s or even lower.

GBP to INR daily chart

A break below the August lows of 87.83 would further worsen the technical outlook as this trough low has special significance. It is the last major trough before the October peak, and a break below it is considered a longer-term bear-market signal in technical analysis.

One slightly contrary indication to our overall bearish thesis, however, is that the momentum indicator in the lower pane of the daily chart is not showing bearish momentum has accompanied the most recent move lower, and this non-confirmation is sometimes a sign bearish confidence is waning. The technical term is convergence and it is thought a bullish sign.

On its own, however, it is insufficient to alter our overall bearish perspective. It may also herald simply a temporary cessation in selling or pullback before the more prominent bear trend takes over.

GBP/INR’s decline is all the more impressive because it has been against a strengthening Pound.

Sterling has been recovering against most counterparts on the back of a general view that a ‘no-deal’ Brexit is still a highly unlikely scenario, regardless of the fact the government is making contingency plans for it.

This view gained more credibility on Tuesday after the EU dismissed the British government’s request for cooperation to achieve a ‘managed no-deal’ in March, in the event a transition deal had not yet been secured by then.

Looking ahead, the pair is vulnerable to impact from the Federal Reserve (Fed) meeting if it impacts on the Dollar since oil is priced in Dollars. There is a risk a more dovish message could weaken the Dollar leading to a recovery in the price of oil and an upside reaction in GBP/INR.

The Fed may feel under pressure to hold off from raising rates as the stock market continues its decline. President Trump has also tried to pressure the central bank into pursuing a less aggressive policy line, although given its independence, this is unlikely to change the course of fed decision-making substantially.

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