IronFX Essential Intraday Comment 24/03/15

Intraday Comment
24.03.2015, 2pm

The dollar traded lower against almost all of its G10 peers during the European morning Tuesday. It was higher against NZD, while it remained stable vs GBP. Although USD has corrected lower against all the G10 currencies over the past this few days, we still believe that a structural rise in USD is taking place and short-term speculative positioning is unlikely to throw it off track. Despite the strong bounce of the euro in the last few days, the overall trend remains to the downside. Any upside extensions are simply corrections of the broader trend, in our view.

EUR started strengthening ahead of today’s announcement of the preliminary PMIs from the Eurozone’s largest economies and the Eurozone as a whole. In the event, the better-than-expected readings showed that the Eurozone economy continues to gather steam and added to the common currency’s gains. The bloc’s composite figure has managed to remain in expansionary territory for 21 consecutive months. The German manufacturing PMI rose further into expansionary territory, adding to the recent batch of positive data from the country. However, the French index remained below the 50 level and fell just below expectations.

The UK CPI rate fell to 0.0% yoy in February from +0.3% yoy in January, surprising the markets on the downside. Today’s figure confirms the warning in the Bank of England’s Inflation Report that the CPI will most likely turn negative. Even more of a concern is that the core CPI, which excludes food and energy, decelerated to +1.2% yoy from +1.4% yoy before, falling short of forecasts. GBP/USD weakened following the report. Even though the market had already priced in the decline following the Inflation Report, we expect the pair to weaken a bit more and test the 1.4835 support line in the near future, in our view.

EUR/GBP continued to race higher and on Monday managed to break above the key resistance (now turned into support) barrier of 0.7300 (S1), which also happens to be the 50% retracement level of the 3rd of February – 11th of March down wave. At the time of the violation, that key zone coincided with the 200-period moving average as well. Today the rate is heading towards the 61.8% retracement level of the aforementioned decline, at 0.7370 (R1). A decisive break above that obstacle is likely to extend the bullish wave and perhaps prompt extensions towards the 76.4% retracement line, at 0.7455 (R2). As long as the rate is trading above the uptrend line taken from the low of the 11th of March and above the downtrend line drawn from the peak of the 3rd of February, the short-term bias stays positive, in my view. However I believe that the broader trend is still negative. After the downside exit of the triangle pattern on the 18th of December, the price structure has been lower peaks and lower troughs below both the 50- and the 200-day moving averages. With no major bullish trend reversal signals on the daily chart, I would see the short-term uptrend as a corrective move of the larger negative path.

• Support: 0.7300 (S1), 0.7230 (S2), 0.7175 (S3).

• Resistance: 0.7370 (R1), 0.7455 (R2), 0.7500 (R3).

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