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IronFX Intraday Comment | EUR/GBP | 02/11/2015

• The dollar traded mixed against its major G10 counterparts during the European morning Monday. It was higher against CAD, AUD, and NZD in that order, while it was lower against GBP and NOK. The greenback was virtually unchanged against EUR, JPY, SEK and CHF.
• The British pound surged after the UK manufacturing PMI beat estimates of a slight deterioration and showed strong growth for October. The manufacturing PMI rose to 55.5 from 51.5 previously, above consensus of 51.3. Even though this is an encouraging figure that points to a strong growth momentum, we would sound a note of caution given that the UK growth slowed in Q3, weighed down by manufacturing and construction sectors. According to the GDP figures released last week, manufacturing sector is currently in recession. As such, we would expect the construction PMI to be released tomorrow to better gauge whether the economy has started to improve in Q4 or the unexpected surge today was just an outlier.
• EUR/GBP tumbled during the European morning Monday, after the unexpected increase in the UK manufacturing PMI for October. Ahead of the release, the pair hit resistance slightly above the 0.7150 (R2) barrier and after the figure was out, it slid to break below the support (now turned into resistance) of 0.7120 (R1), marked by the Friday’s low. The price structure on the 4-hour chart remains lower peaks and lower troughs below the downtrend line taken from the peak of the 13th of October, which keeps the short-term picture negative. As a result, I would expect the dip below the 0.7120 (R1) line to set the stage for more bearish extensions, perhaps for a test at the 0.7085 (S1) barrier. Our oscillators detect strong downside speed and amplify the case for the continuation of the trend. The RSI hit its prior upside support line and fell near its 30 level, while the MACD, stands below both its zero and trigger lines, pointing south. Switching to the daily chart, I see that the dip below the 0.7200 (R3) level has turned the longer-term outlook back negative. This increases the possibilities for EUR/GBP to continue trading lower in the foreseeable future.
• Support: 0.7085 (S1), 0.7030 (S2), 0.7000 (S3)
• Resistance: 0.7120 (R1), 0.7150 (R2), 0.7200 (R3)



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