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IronFX Essential Intraday Comment | 16/06/2015

• The dollar traded higher against almost all of its G10 counterparts during the European morning Tuesday. It was virtually unchanged only against JPY.

• EUR strengthened ahead of the EU Court of Justice ruling regarding the ECB’s Outright Monetary Transactions (OMT) plan but in the event, it gave back the gains to trade near levels prior to the spike. The Court of Justice said that the Bank could buy sovereign bonds on secondary markets and that the program did not violate the rules related to the financing of Eurozone economies. The legality of the OMT provided backing for the ECB’s current bond-buying program and pushed EUR/USD down a bit as this erased concerns that the current QE program could come to an end.

• Later in the day, German ZEW survey for June added to the recent weak data from the country. Both indices fell below market expectations. EUR/USD fell after finding resistance around 1.1330, but the decline stayed above our 1.1185 support zone. A break below that support line is needed to open the way for further declines, perhaps our next support of 1.1145.

• The UK exited deflation as the nation’s headline CPI rate rose to 0.1% yoy in May from -01% yoy previously. The figure was in line with market consensus and in line with BoE expectations of a short-lived dip into deflation. Nevertheless, GBP weakened as the core rate rose to 0.9% yoy from 0.8% yoy previously, but missed the forecast of a rise to 1.0% yoy. This suggests low inflation is not merely a matter of low oil prices and prices may not rise even when the effects of low oil prices fade from the data. Anything that increases the risk that the BoE might not reach its inflation target pushes back expectations of a rate hike and leaves GBP vulnerable, at least temporarily.

• GBP/JPY has been trading within an upside channel since the 13th of May. Therefore, I believe that the short-term trend is to the upside. However, today during the European morning, the rate hit resistance at 193.15 (R1) and pulled back. Taking a look at our short-term momentum studies, I see signs that further pullback could be in the works. The RSI hit resistance at its 70 line and turned down, while the MACD, although positive, has topped and could fall below its trigger line any time soon. A move below the 191.30 (S1) barrier is likely to target the lower bound of the channel or the support area of 189.00 (S2) defined by the low of the 10th of June. On the daily chart, GBP/JPY is trading well above both the 50- and the 200-day moving averages, something that keeps the short-term uptrend begun on the 14th of April intact. However, our daily momentum indicators give evidence of a downside corrective phase as well. The 14-day RSI looks able to exit its overbought zone, while the daily MACD has topped and fallen below its trigger line. There is also negative divergence between both these daily indicators and the price action.

• Support: 191.30 (S1), 189.00 (S2), 187.75 (S3)

• Resistance: 193.15 (R1) 194.00 (R2), 195.00 (R3)

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