EUR/INR Forecast Q4 2020: Will We See A Decent Pullback?
Skerdian Meta • 5 min read
The Euro has gone through some major disruptions since its inception in 2000. We have covered this in our economic calendar section. There have been many influencing factors, beginning with the 2008 financial crisis, followed by the Greek debt crisis, Brexit and now the coronavirus. Nonetheless, the EUR/INR has been on a bullish trend since the Euro was introduced in 2000. The value of this pair has more than doubled since the early 2000s, and buyers remain in total control with this forex pair. The highs of 92.35 in 2013 will probably be broken soon, with the big level at 100 being the target for the EUR/INR. However, we are seeing a bearish reversing pattern forming on the larger time-frame charts, which point to a pullback lower before the next bullish leg, which will probably start by 2022. If the pullback unfolds in full, the price should fall by around 10 cents, from around 87 to 77-78, before resuming its long-term bullish trend.
Current EUR/INR Price: $
|Period||Change (Eur)||Change %|
India is a developing economy, which is attractive for foreign direct investments (FDI), and this should provide support for the Rupee. But the country is also a net importer of goods, which means that more foreign currency goes out of the country than what comes in, so that the demand for the USD, EUR, CNY, GBP etc. is sustained. This is one of the main reasons why the Indian Rupee has been bearish for decades, while on the other hand the European trade balance is positive, hence the uptrend in the EUR/INR. The interest rates remain in favor of the Indian Rupee, with the ECB holding them at 0.0% and -0.50%, while the RBI rates stand at around 4%, despite some major cuts in recent years. But right now, central bank rates are not that important, since the situation surrounding the coronavirus and the economic rebound, coupled with international politics, is driving the sentiment in the markets, including the EUR and the INR. The INR started to gain some strength in August, after lagging, compared to other risk currencies, but the climb in the INR has stalled in the last few weeks, as has the pullback in the EUR/INR.
|USD/INR Forecast: Q4 2020||USD/INR Forecast: 1 Year||USD/INR Forecast: 3 Years|
|Price: $78 – $80 |
Price drivers: Covid-19, Risk Sentiment, RBI Rates
|Price: $ 82 – $84 |
Price drivers: Market Sentiment, Economic Recovery, Developing Markets, USD Correlation
|Price: $88 – $90|
Price drivers: Price Drivers: Inflation, Economic Recovery, Developing Markets, RBI Actions, Inflation
EUR/INR Price Prediction for the Next Five Years
Market Sentiment and Covid-19
Both the Indian Rupee and the Euro are risk currencies, although this status is stronger in the INR, since India is a major developing country, which is expected to surge in the coming decades. But the coronavirus situation and the political events around the globe have made the future less certain for such economies, so it depends on how the whole situation turns out in several months. However, the last decade wasn’t very good for main commodities and risk currencies. Hence the bullish trend in the EUR/INR, the conversion rate of which stands at 87, is expected to continue for this pair, but only after a pullback lower, as the sentiment has improved lately for the INR. Risk assets have benefited from the risk sentiment during the coronavirus times and they have made some decent gains since March, but the INR has been lagging. But it is starting to catch up, with the EUR/INR pulling back more than 3 cents lower during August. However, the pullback has stalled in the last few weeks, so that’s how far the sentiment takes us in this pair. Now let’s have a look at other fundamentals and technicals.
Inflation and RBI Policy
As we mentioned above, unlike China, India is a net importer. As a result, the demand for foreign currency is always high, which keeps the Rupee under pressure. The growing deficit in India’s trade balance was one of the main factors that sparked a crash in the Indian Rupee in 2013, and the EUR/INR made the record highs back then, at 92.35. The Eurozone is a net exporter, which means that it has a positive trade balance. At 4%, India, as a developing economy, has a higher inflation target, while the ECB target is around 2%, but it is far from from that at the moment. As a result, the interest rates from the Reserve Bank of India (RBI) are higher. Below, you can see the ECB and RBI rates as of September 2020:
INR Policy Rates
|Deposit Facility Rate:||-0.50%|
|Main ReFi Rate:||0.00%|
|Marginal Lending Facility Rate:||0.25%|
ECB Interest Rates
|Policy Repo Rate:||4.00%|
|Reverse Repo Rate||3.35%|
|Marginal Standing Facility Rate:||4.25%|
EUR/INR Correlation with the Euro and the INR
As shown from the weekly chart, the EUR/INR has been on a bullish trend since 2000, with occasional pullbacks lower. The surge in 2013 was unusual, but it pushed the bar higher for this pair, which is approaching the big level at 100. Moving averages haven’t been of much help on this climb, but the 200 SMA (gray) has turned into support since last year, which is where we plan to buy this pair, if there is a retrace down there.
Lows keep getting higher for the EUR/INR
On the other hand, the Euro index EXY has been on a bearish trend itself. Moving averages haven’t worked here either, and the trend is not a straight line, but the highs have been getting lower and the latest high is still below the last high in 2018. The latest retrace also seems exhausted now, after failing to push above 120, so the downtrend is likely to continue, albeit at a slower pace, if the EU doesn’t disintegrate soon. This means that the bullish trend in the EUR/INR, is not because of the Euro itself, but because the Rupee has been even weaker during this time. So, if we are trading this pair, we should focus more on the Indian Rupee than on the Euro.
The Euro index is on a bearish trend
EUR/INR Technical Analysis – A Pullback Expected Before the Assault on All-Time Highs
The EUR/INR started its life at around 45 in 2000, and after a small pullback in the beginning, it has been on a bullish trend ever since. Pullbacks have been systematic, but buyers have remained in control. Moving averages have been doing a good job as support, with the 50 SMA (yellow) holding the price when the declines have been shallow, and the 100 SMA taking its turn when pullbacks have been deeper.
The 100 SMA has worked well as the ultimate support
The 100 SMA (green) reversed the price up in 2010, after a doji monthly candlestick above it – this is a bullish reversing signal. Then the price reversed again in 2015 and 2017. The latest retrace lower was shallower, and the EUR/INR has bounced off the 50 SMA since February, but the previous candlestick from August closed as a morning star, which is a bearish reversing signal after the climb. The September candlestick looks sort of bearish. This points to a possible pullback lower, to the 50 SMA at least, or perhaps the 100 SMA. If that happens, we will go long on this pair, but it is not certain whether we will see such a pullback. We will keep you guys updated.