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SPECIAL FOCUSGBP/INR Rising wedge warns of the potential for reversal.

By Bijoy Kar, CFAwww.migbank.com

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SPECIAL FOCUS18 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: b.kar@migbank.com, Phone: +41 32 7228 424

GBP/INR

GBP/INR daily chart, Bloomberg Finance LP

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SPECIAL FOCUS18 October, 2011

www.migbank.com

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