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    IronFX Intraday Comment | GBP/JPY | 22/01/2016

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

    • Germany, France and the Eurozone as a whole released their preliminary Markit manufacturing and service-sector PMIs for January. Almost all of the indices missed expectations and declined, suggesting that Eurozone’s economic activity may have slowed in the first month of 2016. This adds to mounting concerns that the weakness in the global economy affects Eurozone’s growth as well. This concern was also acknowledged by the ECB President Draghi yesterday, that the risks to the euro area growth outlook remain on the downside. In particular due to the heightened uncertainties regarding developments in the global economy, as well as to broader geopolitical risks. The subdued growth prospects in emerging markets continue to weigh on the economic recovery in the Eurozone. These risks along with a lower inflation outlook, increase the likelihood that the ECB may deliver additional measures at its March meeting.

    • UK retail sales plunged in December, printing their biggest monthly fall in almost two years. The weak sales were mainly blamed to mild weather softening demand for clothing and to extended discounts that reduced revenues for retailers over the holiday period. Given that UK inflation is close to zero and despite their slowdown, real wages are still growing considerably, we are not convinced that December’s weakness in retail sales reflects soft overall demand. Instead we would prefer to wait until the seasonal factors fade out of the calculation before drawing any definitive conclusions about the underlying trend in sales.

    • GBP/JPY surged on Friday after it hit support at the 167.00 (S1) line. The move was halted at the 169.20 (R1) barrier, which was tested several times as a support early this month, and then as a resistance on the 19th of January. A decisive break of that level is needed to push the rate higher and perhaps challenge our next resistance zone at 170.65 (R2). A break above 169.20 (R1) level would also signal a higher high on the 4-hour chart, and could signal that the corrective move that started after the pair hit the psychological 165.00 (S3) zone, is likely to continue. Our short-term momentum studies support this notion. The RSI moved above its 50-line and is pointing north, while the MACD, crossed above its trigger line and seems willing to enter its positive territory after a very long time. Zooming out to the daily chart, I see that on the 21st of December the rate fell below the 180.50 key hurdle, which is the lower bound of the wide range the pair had been trading since the 25th of August. Bearing that in mind, I see a negative medium-term picture and I would treat any advances as corrective moves.

    • Support: 167.00 (S1), 166.00 (S2), 165.00 (S3)

    • Resistance: 169.20 (R1), 170.65 (R2), 172.35 (R3)

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