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IronFX Intraday Comment | EUR/JPY | 04/01/2016

• The dollar traded lower against most of its G10 counterparts during the European morning Monday. It was higher against NOK and AUD in that order, while it traded lower against JPY, EUR, CHF, SEK, GBP and NZD. The greenback remained virtually unchanged against CAD.

• In Germany, although the regional monthly CPI rates for December overall declined the annual rates stayed unchanged. These figures increase the possibility for the national inflation rate, due out later today to be lower as well. This also increases the possibility that on Tuesday, Eurozone’s flash CPI could miss expectations of a rise. A possible deterioration in the data could put some downward pressure on the euro that may reverse some of its morning gains. Additionally, given the recent comments by the ECB Executive Board member Yves Mersch that the Bank’s ‘toolbox is not empty’ and that QE ‘will run as long as necessary’, a disappointment in the data leave the door open for further stimulus in the foreseeable future.

• The British pound weakened a bit after the UK manufacturing PMI declined in December, but recovered its losses in the following hour to trade higher against the greenback. The manufacturing PMI declined to 51.9 from 52.7 previously, below the consensus of an unchanged reading. Even though the figure remained above the 50-level that points to expansion, the decline could add to concerns of further slowdown in growth rate in the final quarter of the year. Since the slowdown in Q3 GDP was mainly attributed to the manufacturing and construction sectors, we would expect the construction PMI to be released tomorrow to better gauge whether the economy lost steam in Q4 and add to evidence that the two sectors have not fully recovered. This could put the GBP under renewed selling pressure.

• EUR/JPY traded lower during the European morning Monday, reaching the key support obstacle of 129.75 (S1). The short-term trend remains negative in my view but I prefer to see a decisive dip below 129.75 (S1) before I trust further declines. I believe that such a move could see scope for extensions towards the 129.00 (S2) support obstacle, defined by the low of the 27th of April. Both our technical momentum studies reveal accelerating downside speed and confirm the negative outlook of the pair. The RSI slid and fell below its 30 line, while the MACD stands below both its zero and trigger lines, pointing down. Switching to the daily chart, I see that the rate started tumbling after it hit resistance near the downtrend line taken from the peak of the 21st of August. Therefore, I would consider the longer-term path of EUR/JPY to be negative as well.

• Support: 129.75 (S1), 129.00 (S2), 128.00 (S3)

• Resistance: 130.30 (R1), 131.00 (R2), 131.45 (R3)



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