special focus gbpinr - 18.10.2011
TRANSCRIPT
MIG BANK 14, rte des Gouttes d’Or CH-2008 Neuchâtel Switzerland Tel +41 32 722 81 00 Fax +41 32 722 81 01 [email protected]
SPECIAL FOCUS GBP/INR – Rising wedge warns of the potential for reversal.
By Bijoy Kar, CFA www.migbank.com
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SPECIAL FOCUS 18 October, 2011
www.migbank.com
GBP/INR – Daily rising wedge warns of a corrective phase lower.
Before analysing the price movement of the Indian Rupee versus Sterling,
it is useful to note that the Rupee is not a freely floating currency. This is
captured in a quote from the RBI governor who claims that “foreign
exchange rates are influenced by market forces and the RBI”. This fact has
the potential to make GBP/INR harder to analyse from a technical
perspective.
GBP/INR has broken away from the tight range that was established at the
beginning of the year between 68.89 and 74.23, reaching 77.66 so far this
year.
This movement away from the 200 day moving average has begun to form
a rising wedge, as seen in the daily candlestick chart to the left. Typically
these formations are associated with a weakening of the prior rising trend,
with scope for a pullback or outright reversal.
This pattern follows a period of RBI rate hikes that have been administered
in order to lower inflation rates, in particular food price inflation. So,
despite a rising base rate, the Indian Rupee has been steadily falling versus
Sterling for the majority of the year due to inflation fears. At the very
least, we can say that the trend of GBP/INR has been to the upside .
However, this hiking cycle is probably coming to an end as slower growth
rates are expected to temper inflation expectations. This may thus trigger
a period of Rupee strength as the potential for a controlled inflation
environment brings back the return of speculative investment flows.
EUR/USD
Bijoy Kar, Technical Strategist, E-mail: [email protected], Phone: +41 32 7228 424
GBP/INR
GBP/INR daily chart, Bloomberg Finance LP
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SPECIAL FOCUS 18 October, 2011
www.migbank.com
Also the RBI may now favour a stronger rupee as this will also help to
contain inflation due to the rising costs of imported goods with a
weak/weakening currency.
With all of the above in mind a break above the resistance of the rising
wedge would be expected to be short lived. Should this occur and then
be followed by a push under wedge support, currently at 76.64, the
probability of reversal would be increased and short positioning would
then be favoured. In the meantime, a squeeze higher to 78.00/79.00 is
expected short-term. It then remains to be seen if this potential break
higher can be held or not. As described above, a failure to do so would
constitute a false break higher, targeting 73.35 immediately. Should this
scenario play out a failure then to remain above the 200 day moving
average would warn of a larger reversal with potential then for 70.60/68.92
and then 64.47 further out.
GBP/INR weekly chart, Bloomberg Finance LP
GBP/INR
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SPECIAL FOCUS 18 October, 2011
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SPECIAL FOCUS 18 October, 2011
www.migbank.com Bjioy Kar Technical Strategist [email protected]
14, rte des Gouttes d’Or CH-2008 Neuchâtel Tel.+41 32 722 81 00
MIG BANK [email protected] www.migbank.com
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