Euro to GBP Exchange Rate Slumps BUT Euro Dollar Rate Continues to Firm After Recent Losses

A look at the markets mid-week confirm the shared currency is trading with a soft underlying tone:

• The euro dollar exchange rate is 0.18 pct higher at 1.3577.
• The euro pound exchange rate collapsed overnight to reach 0.7998.
• The euro to Aus dollar exchange rate is 0.39 pct higher at 1.4433.
• The euro to Canadian dollar rate is 0.14 pct higher at 1.4737.

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Euro pound exchange rate slumps

The big news in global FX at present concerns the pound sterling which was propelled higher overnight by the Bank of England's Mark Carney.

Lloyds Bank Research tell us:

"Carney’s comments at the Mansion House indicating that UK rates could rise sooner than the markets expect propelled GBP sharply higher through the 0.80 level in EUR/GBP and within touching distance of the 1.70 level in GBP/USD.

"While Carney provided no detail of how soon rates could rise, it is unlikely that he would have made such a bold statement without a real possibility that rates could rise this year. From here, the 1.70 level is the next target and seems likely to break today. Though moves beyond this may still prove difficult, yield spreads do suggest scope for gains and we would expect the pound to hold above 1.70 by the end of the day."

Forecasting the euro dollar rate to remain weak

According to Kathy Lien at BK Asset Management the zone between 1.3475 and 1.3500 represents a very significant support level for the EUR/USD:

"EUR/USD traders should keep an eye on European yields. Italian 10 year yields fell by approximately the same amount as 10 year Treasuries while the drop in German, French and Spanish yields was less, which explains the more modest sell-off in EUR/USD today.  Eurozone industrial production is scheduled for release on Thursday and a rebound is expected after the decline in March."

Confirming the importance of yields to the euro is Lloyds Bank Research:

"EUR/USD has been trading in line with the widening of 2y EZ-US rate spreads. While the relationship between rate spreads and EUR/USD is perhaps not as tight as previously seen, the continued widening in rate spreads suggests EUR/USD bias may remain to the downside. The 1.3480/1.3500 will likely remain good support.

Concerning the forecast, Luc Luyet at Swissquote Research warns that support for the EUR will likely remain poor:

"EUR/USD's bullish intraday reversal on 5 June has created a key support at 1.3503. Monitor that level as buying interest has thus far remained weak.

"Hourly resistances can now be found at 1.3602 (10/06/2014 high) and 1.3677. In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. The long-term downside risk implied by the double-top formation is 1.3379. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low)."

According to Piet Lammens the euro dollar rate is near post-ECB rate decision lows, and if support breaks we can expect further declines:

"In a day-to-day perspective, for EUR/USD, we look out whether the pair can take out to 1.3503 post ECB low. This would open the way for a test of the year low at 1.3477."

Equity markets struggle, Sainsbury's in focus on FTSE today

Euity markets in Europe fell Wednesday from six-year highs after the World Bank cut its global growth forecast; the World Bank now expects the world economy to expand 2.8% this year, down from the 3.2% forecast set in January.

The institution expects slower growth for the US, China, Russia, India and Brazil – countries which are widely viewed as the key drivers of the global economy.

The World Bank cited risks including China’s slowing property market and the geopolitical situation in Ukraine, together with the prospect of tighter global financial conditions over time.

"As such, trading across major equity markets is subdued on the whole with key European indices broadly lower as well as US equity futures.  Global stock markets are still hovering at record highs though, thanks to largesse by the European Central Bank last week, with its stimulus response sending the euro near to a four-month low at around $1.3538," says Daniel Sugarman at ETX Capital.

Looking at those names in focus at present we see:

Google confirmed it has purchased satellite firm Skybox Imaging for $500m (£300m). 'Skybox's satellites will help keep our maps accurate with up-to-date imagery' said Google in a statement.

The US Federal Aviation Administration (FAA) has granted its first commercial drone license over US land to British oil giant BP and unmanned aerial vehicle firm AeroVironment.

Energy suppliers risk 'undermining public confidence' in the market by failing to respond to falling wholesale prices, the regulator has said. Ofgem said the 'big six' companies should explain to customers why falling wholesale prices have not been passed on to household bills.

Sainsbury's has said they expect customer spending to remain cautious throughout the year as they announced their latest set of results. Their first quarter total sales were up 1% year on year, with the Taste the Difference range sales up 10%. Like-for-like retail sales for the quarter were down 1.1% excluding fuel and down 2.4% including fuel.