Forecasts for Euro to Pound Exchange Rate See Declines to 0.7755 EUR/GBP at Swissquote Bank

The British pound (GBP) continues to fail in its attempt to advance further against a stubborn euro despite the continued divergence in economic performance witnessed between the Eurozone and the UK.

The euro fell sharply on Thursday on negative comments issued by European Central Bank (ECB) on future direction in Eurozone monetary policy.

However, the rate recovered all lost ground ensuring the euro to pound exchange rate (EUR/GBP) holds near levels captured earlier in the week following speculation that the ECB's ability to devalue the euro has been put in doubt by apparent disunity amongst ECB governors.

With fundamentals providing little help in predicting where the euro sterling rate is headed we turn to the technical analysts to determine where the currency is headed next.

At the time of writing the euro to pound exchange rate is higher at 0.7832 while the pound to euro (GBP/EUR) is at 1.2770.

The Euro Pound Chart

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P.S: The above quotes are taken from the global FX spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent FX provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.

Longer-Term Forecasts See Further Euro Downside

Luc Luyet, analyst with Swissquote Bank tells us why the longer-term picture appears to be supportive of the GBP despite the ongoing resistance being shown by the shared currency:

"A break of the hourly resistance at 0.7867 (intraday high) is at least needed to suggest something more than a temporary bounce.

"Another hourly resistance lies at 0.7885 (31/10/2014 high). A test of the key support area between at 0.7767 (30/09/2014 low) and 0.7755 remains favoured. An hourly support lies at 0.7800 (03/11/2014 low).

"In the longer term, the underlying downtrend favours a test of the major support area between 0.7755 (23/07/2012 low) and 0.7694 (20/10/2008 low) at minimum. A decisive break of the resistance at 0.8034 (25/06/2014 high) is needed to suggest some exhaustion in the medium-term selling pressures."

The Euro Exchange Rate Today

Turning to the fundamentals we note that the euro neared two-year lows against the US dollar on caution ahead of the ECB meeting as calls for stronger central bank action grew louder on another batch of worrisome data from the bloc.

The euro fell when the ECB president clarified that the central bank wanted to return its balance sheet to levels last seen in March 2012, when the ECB owned €980bn more in assets than it does today.

President Draghi said:

“We know the risks are on the downside and we know we need to be prepared.

“The main message is that our balance sheet will keep expanding in the coming months . . . under all universes”

The euro recovered as markets came realised that the ECB event offered little new information.

"The euro won a modest relief rally from two-year lows below $1.25 after the ECB stood pat on policy, a move that wrong footed some in the market who had bet on another dose of monetary aid following Japan’s surprise move to do just that last week," says Joe Manimbo at Western Union.

However the outlook for the Eurozone suggests the ECB will ultimately have to take further action and the currency will likely decline accordingly.

Recent data shows that euro zone retail sales fell by a larger than expected 1.3 percent in September while final prints of services activity in the euro zone and Germany got revised lower.

“Draghi’s more dovish tone so far seemingly opened the door wider to the prospect of the ECB using stronger stimulus such as Fed-and BOJ-style QE government bond purchases," notes Manimbo.

The British Pound Exchange Rate Today

The Bank of England today offered no changes to policy while Industrial and Manufacturing Production data came in with consensus expectations.

Sterling neared a one-year bottom further south of $1.60 against the US dollar on the previous day after growth in Britain’s leading services sector proved much cooler than expected, offering more evidence of an economy that has shifted into a lower gear.

The services PMI moved to 56.2 for October, marking the slowest growth since May 2013, which was more than two points below forecasts of 58.5 from 58.7 in September.

According to Manimbo these levels will suit UK exporters:

"A number this soft will provide fresh ammunition for the majority of U.K. central bankers to keep rates low for longer, weighing on sterling’s yield potential.

"The latest leg lower in the U.K. unit effectively serves as a green light for U.S. importers to cover exposure at the best market in a year. Uncertainty remains high ahead of the ECB Thursday and U.S. government jobs report Friday."