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IronFX Intraday Comment | EUR/JPY | 03/12/2015

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

• Euro maintained its choppy price action ahead of the much anticipated ECB policy meeting. With the market aligned behind further easing as the Bank is poised to fight low inflation, the final service-sector PMIs from France, Germany and Eurozone simply passed unnoticed. ECB President Mario Draghi and several Bank officials essentially pre-committed for another rate cut and an increase of the current stimulus package but what concerns the market is if they will deliver a more aggressive stimulus package than currently priced in. ECB’s Draghi is well-known for his rhetoric to do whatever it takes to support Eurozone’s economy and by that, he could always surprise the markets and bring EUR/USD closer to parity. Anything less than current expectations could disappoint investors and we could see the common currency strengthening.

• The UK service-sector PMI for November surprised to the upside, pointing to a stronger expansion in the final quarter of the year. The service-sector PMI rose to 55.9 from 54.9 previously above expectations of 55.0. The strong data offset somewhat the weakness seen in manufacturing and construction sector PMIs for the same month. Even though the British growth looks to pick in Q4, we would prefer to wait to see a comprehensive set of strong data to bring forward expectations of rate liftoff from the BoE, before we trust GBP advances.
• EUR/JPY traded lower during the European morning Thursday after it hit resistance near the downtrend line taken from the peak of the 9th of November, slightly below the resistance hurdle of 131.10 (R1). As long as the pair is trading within a downside channel, I would see a negative short-term picture. I believe that the negative wave is likely to continue and drive the rate below the support line of 130.30 (S1). This is likely to initially target the 129.70 (S2) zone, defined by the lows of the 27th of November and the 1st of December. Shifting my attention to our short-term oscillators, I see that the RSI turned down and fell back below its 50 line, while the MACD, although positive, has topped and fallen below its trigger line. These indicators support my view that EUR/JPY is likely to continue lower, at least in the short run. As for the broader trend, on the 22nd of October, the rate fell below the upside support line taken from the low of the 14th of April. This has turned the medium-term outlook negative as well.

• Support: 130.30 (S1), 129.70 (S2), 129.35 (S3)

• Resistance: 131.10 (R1), 131.45 (R2), 132.00 (R3)

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