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    IronFX Intraday Comment | EUR/GBP | 01/02/2016

    • The dollar traded unchanged against most of its major counterparts during the European morning Monday. It was higher only against CAD and NZD, in that order.

    • The British pound strengthened somewhat today after the UK manufacturing PMI rose in January, pointing to a slight improvement in Britain’s manufacturing sector at the beginning of the year. However, sterling gave back the gains within the following minutes to trade near its early morning levels against its US counterpart. The UK manufacturing PMI increased to 52.9 from 52.1 previously, beating expectations of a minor decline. Domestic demand continued to be the key driver in manufacturing activity, pushing the rate of expansion in output up to a 19-month high. However, new export orders continued to disappoint. Companies noted that lower overseas sales were a result of stronger competition, while other manufacturers blamed the strength of the sterling against the euro, despite its recent tumble, as a major factor impacting order inflows. What is more, due to the ongoing weakness in commodity prices, manufacturers saw input costs and selling prices fall in January, something that points to subdued inflationary pressures in the near term. Therefore, although a positive report, signs of muted price pressures could push further back expectations of the first BoE rate hike.

    • Eurozone’s final Markit manufacturing PMI for January confirmed the preliminary estimate and showed that the manufacturing sector in the Euro-area started the year on a softer growth footing than in December. The report showed that prices charged by producers fell at the fastest rate in a year. This may spur concerns of falling producer prices feeding into consumer prices and could increase the pressure on the ECB to expand its stimulus program as early as in March. On a national level, the final German PMI came fractionally higher that the initial forecast, while the French print confirmed that the index fell to the stagnation mark of 50.

    • EUR/GBP traded in a consolidative manner on Monday, staying between the support zone of 0.7540 (S1) and the resistance territory of 0.7665 (R1). The pair has been oscillating between these two zones since the 21st of January. As a result, I still consider the short-term outlook to be flat. Our short-term momentum indicators gyrate around their equilibrium lines, confirming the neutral bias of the pair. A clear move above 0.7665 (R1) is needed to turn the picture to the upside, something that could open the way for another test at the 0.7755 (R2) resistance hurdle, defined by the peak of the 20th of January. On the other hand, a dip below 0.7540 (S1) is possible to challenge the upside support line drawn from the low of the 7th of December or the 0.7465 (S2) support line. Switching to the daily chart, I see that on the 8th of January, the rate managed to emerge above the upper bound of the sideways range the pair had been trading since the beginning of February 2015. This has turned the medium-term outlook positive and as a result, I would treat any possible short-term downside extensions as a corrective phase for now.

    • Support: 0.7540 (S1), 0.7465 (S2), 0.7400 (S3)

    • Resistance: 0.7665 (R1), 0.7755 (R2), 0.7865 (R3)


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