Current setup
Bias: bullish.
Any cautious bullishness at the start of the week has cascaded very quickly into all out bullishness on the GBP/INR. The currency pair started the week at 128.9, recovering from a period of recent weakness. However, it is fast approaching its 52-week high near 131.15 soar towards $109 per barrel.
The major driver for this pair is the renewed pressure on the Indian rupee as Brent crude now trades well above the $100 psychological benchmark previously identified as a tipping point for emerging market FX pairs whose nations depended on crude imports. India is the third largest oil importer in the world, and rising crude prices make it more expensive for the country to purchase imported energy products. This is particularly negative for the rupee and has driven the 4-day winning streak on the GBP/INR.
Macro Drivers Behind the GBP/INR Recent Moves
1) Sharp Rise in Oil Prices
The rupee has taken a hefty pounding this week as Brent crude soared above the $100 tipping point. The sharp rise in oil prices has raised India’s import bill and worsened its terms of trade. The geopolitical risk premium is fully on and is as good as back to the levels it was when the war broke out. As things stand, the GBP/INR is now an oil-trade currency pair.
↑ Oil → ↑ rupee pressure → ↑ GBP/INR
2) RBI intervention limits the rupee’s downside
The RBI’s managed float system requires it to intervene to prevent disorderly and excessive rupee weakness. Reports have it that the RBI has been intervening directly and also by using FX swaps to manage the rupee’s weakness. This only slows a GBP/INR rally without reversing the tide as long as Brent crude stays above $100 a barrel.
3) Bank of England Expectations
The BoE has only become a factor due to next week’s interest rate decision. Markets will have to assess the impact of elevated oil prices on UK inflation and whether this has been enough to force the BoE’s MPC into hawkish action to contain any imported inflation. A higher-for-longer rate outlook amid rupee weakness due to the geopolitical risk premium sends the pair soaring.
GBP/INR: Forecast Scenarios
Base case: GBP/INR now has a firm bullish bias as long as Brent stays above $100. The next target lies at $114-$115 for Brent crude, and this puts the GBP/INR on the verge of a break of the $129.24 resistance.
Bull case: any further escalations within the geopolitical sphere that leads to Brnt crude topping $114 per barrel could lead to a further push towards 130+ in the GBP/INR.
Bear case: geopolitical de-escalation will lead to a sharp decline in crude oil prices. In this scenario, rupee strength will lead to a pullback of the GBP/INR toward 127.50–128.00.
Technical Outlook
Resistance: 129.14, followed by 130.07 and 130.88.
Support: 127.68, followed by 126.69.
The active daily candle is now trading above the 129.14 resistance, and if the candle achieves a daily close above this barrier, it confirms the breakout move initiated by the prior day’s candle. The break of 129.14 unlocks access to the 130.07 resistance (11 May and 20 May highs), leaving this as the only barrier before a retest of the all-time high at 130.88 (21 August high).
On the flip side, a decline below 129.14 makes a case for a pullback towards 127.68 (18 May and 5 August low), before the 126.69 support becomes the next available downside target.