Euro Pound Outlook: EUR Looks to Reach 0.7340 Near-Term

The euro exchange rate complex is looking strong trading into the easter break with momentum.

"This should ensure the fundamental outlook remains robust and we are forecasting a break and hold of the 1.40 region later in 2015."

The shared currency is advancing against both the British pound and US dollar.

We see the strength against the USD as being particularly important as often strength here translates directly into strength against the pound.

Watch the US dollar which has been undermined by some soft data as of late.  Any further weakness in the USD should aid the broader euro exchange rate complex in the near-term.

The release of Non-Farm Payroll data, on thin holiday impacted markets, will be closely watched on Friday.

The pound to euro exchange rate is seen trading sharply lower on a day-to-day comparison at 1.3700.

The euro to pound rate (EUR-GBP) is therefore at 0.7299.

Be aware that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances. Find out more here.

Pound Undermined by Data

The GBP failed to find any bids after the release of the monthly Markit/CIPS UK construction purchasing managers' index (PMI) which was shown to have fallen to 57.8 last month after hitting a four-month high of 60.1 in February.

There were further signs of companies delaying spending decisions ahead of a national election on May 7 and employment numbers rose at their slowest since December 2013.

The Short-Term Outlook More Gains to Come

Momentum indicators are currently advocating for further gains in the euro.

We see the EUR-GBP has broken above the 20, 50 and 100 period moving averages on the 1 hour charts which confirm to us that the next liable target to be met is the resistance zone at 0.7340.

In GBP-EUR terms this means a fall is likely towards 1.3624.

We note that the Momentum technical reading is also advocating for further gains by the euro with the indicator now well above 20.

Analyst Luc Luyet at Swissquote Bank tells us he sees more gains ahead for the euro:

“EUR/GBP has thus far successfully tested its hourly support at 0.7228 (see also the 38.2%
retracement).

“As long as this level holds, a further rise towards the resistance at 0.7459 is favoured.

“Hourly resistances stand at 0.7342 (27/03/2015 high, see also the declining trendline) and 0.7385 (26/03/2015 high).”

Fundamental Outlook for the Pound Sterling

Looking at the calendar the GBP faces a busy week ahead.

Here are the key happenings to be aware of if you have imminent currency market requirements.

1. Services PMI (Tues 7 Apr):

The services PMI has generally been trending lower since the middle of 2014 points out Jacqui Douglas at TD Securities in London.

However, Douglas things the downtrend should be coming to an end, given the performance of other European PMIs for the month of March, and the continuing positive signs from the UK economy.

TD are looking for a rebound from 56.7 to about 57.5 (mkt 56.9), bringing the PMI back up to its highest level since November.

2. Industrial Production (Fri 10 Apr):

Analysts are pricing int a small rebound in manufacturing production in Feb, but likely not enough to make up for the -0.5% contraction in Jan.

“The economic data over the next month could have a larger than usual market impact, given the likely focus on the state of the economy through the election campaign. While most forecasters have long been looking for growth to decelerate in 2015 after a very solid 2014, too drastic of a slowing could have an impact on voting intentions in May,” says Douglas.

3. Bank of England Decision (Thurs 9 Apr):

This will be the last BoE rate decision before the election, but there is zero chance of anything happening here.

“Especially since MPC members have an extraordinarily long pre-election blackout period, which has already begun, so it would be unfathomable for the BoE to do anything shocking given that it wouldn’t even have the chance to explain itself,” says Douglas.

We continue to see little reason to expect an uplift in the fortunes of the pound sterling against the euro at the present time.

Electoral uncertainty, combined with a fatigued rally in GBP-EUR, point to an extension of the current consolidation we are witnessing.

However, the UK economy does remain in good health and the Bank of England is likely to raise interest rates in coming months.

This should ensure the fundamental outlook remains robust and we are forecasting a break and hold of the 1.40 region later in 2015.