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Pound-Rupee Exchange Rate Tipped for more Gains vs. Sterling Once Tight Range Breaks

Rupee

Image © Ash T Productions, Adobe Stock

- GBP/INR now below a major trendline

- Possibly set to decline to target in the 87s

- Rupee movements will correlate with the price of oil

It's a strong start to the new week for the Pound against India's Rupee with the GBP/INR exchange rate trading higher at 88.61. 

The gains do however merely take the pair to the upper end of a very tight range that has been in place since mid-December and this range could well dictate movement over coming days but over a multi-week timeframe the Rupee appears to hold the advantage. The range is loosely defined by 89.24 at the top and 88.23 at the bottom.

A slight recovery in the price of oil is probably the main catalyst for the slip in the Rupee that has allowed GBP/INR to climb back towards the top of the range; INR is sensitive to oil prices since India has to import almost all of its fuel.

From a technical perspective, the outlook for GBP/INR remains bearish. The pair has broken below a key threshold level in the form of the trendline from 2017 lows, and the 50 and 200-day moving averages (MA). This alone suggests potential for more downside in the pipeline - we are however not confident on the timing of when any downtrend might resume.

GBP to INR chart

Above: GBP/INR shown at weekly intervals.

Should the pair break lower, the first bear target for the pair is situated at 87.33, based on the usual method of extrapolating the length of the move prior to the trendline.

Another key level is the August low at 87.83 and if this is breached it will provide even more confirmation the trend has become more negative, because it is the last primary trough before the 98.52 high, and therefore structurally has added significance.

The RSI momentum study in the lower pane is lower than it was at the August lows and this divergence suggests ‘pent-up’ downside potential, which further adds to the bearish outlook and suggests a downside bias.

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The Rupee: What to Watch this Week

The main fundamental factor driving the Rupee at the moment is the price of oil. The more costly it is the more Rupees have to be sold to import it and this weighs on the currency. The opposite is true if oil gets cheaper, which is the case over the last few months, with the result that the Rupee has gained.

The commodity is set for its first yearly decline since 2015 after dropping by circa 40% from its peak in mid-October. At the time of writing, WTI crude is down by over 23% on the year.

The price of oil is subject to a tug-of-war between an oversupply problem caused by increased production in the US due to an increase in shale oil drilling and the counterforce of OPEC supply cuts, to boost the price.

“The major story for oil next year will be the issue of oversupply versus production cuts by OPEC+ nations,” says Justin Low, an analyst at Forexlive.com. “The latter has continued to give reassurances to markets that they will be cutting significantly to ensure that the market won't be flooded with overwhelming supply but so far it just isn't doing the trick.”

On the data front, the main release for the Rupee is probably Nikkei manufacturing PMI for December, out on Wednesday at 5.00 GMT. In the previous month of November came out at 54.0.

Nikkei Services is also out on Thursday, and forecast to decline to 52.5 from 53.7 previously.