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IronFX Essential Intraday Comment | 18/08/2015 EUR/GBP

• The dollar traded mixed against its G10 peers during the European morning Tuesday. It was higher against AUD, NOK, NZD and CAD, in that order, while it was lower vs GBP, CHF and SEK. The greenback was virtually unchanged against EUR and JPY.

• The UK inflation rose 0.1% yoy in July, following a flat reading in the previous month and beating the expectations for the annual rate to remain unchanged at 0%. What’s more, the core CPI accelerated to 1.2% yoy from 0.8% yoy, way above forecasts of 0.9% yoy. Along with an improved job market and accelerating wages, this suggests that inflationary pressures are building up. Nevertheless, at the Bank’s quarterly Inflation Report released earlier this month, the forecast for inflation in 2015 was halved and is expected to remain subdued because of the second slump in global oil prices. Therefore, any signs of a stronger upward pressure in prices is likely to re-price expectations of BoE tightening and encourage hawkish MPC members to join the lone dissenter McCafferty in voting to raise rates. GBP/USD jumped on the news but found resistance few pips above our 1.5670 level. A break above that obstacle is needed to confirm a forthcoming higher high on the 4-hour chart and open the way for the next resistance at 1.5735.

EUR/GBP found resistance near 0.7110 (R1) and tumbled during the European morning Tuesday, following the upside surprise in the UK CPI data for July. Following the break below the short-term uptrend line taken from the low of the 5th of August, and the completion of a double top formation on the 14th of the month, I would consider the near-term picture to be negative. As a result, I would expect the negative wave to continue and perhaps challenge the 0.7045 (S1) support barrier. A break below that hurdle could extend the downtrend towards 0.7015 (S2). Our momentum indicators detect negative momentum and amplify the case for further declines. The RSI hit resistance near its 50 line and fell down, while the MACD, already below its trigger line, has just turned negative. On the daily chart, the fact that on the 5th of August the rate formed a higher low make me keep a neutral stance as far as the overall picture is concerned.

• Support: 0.7045 (S1), 0.7015 (S2), 0.7000 (S3)

• Resistance: 0.7110 (R1), 0.7160 (R2), 0.7200 (R3)

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