GBP Defends Baseline v EUR as Momentum Finally Returns

Those looking for a better British pound to euro exchange rate will be encouraged by recent developments in the currency pairing.

At the time of writing, those converting pounds into euros are seeing the exchange rate (GBP-EUR) trading 0.67 pct higher on a day-to-day comparison having achieved a conversion of 1.3716 on the inter-bank markets at the time of writing.

The current price action comes following some better-than-expected data from the UK’s important service sector which is growing at its strongest pace in months serving to confirm the UK economy continues to grow at a healthy pace. Further details on this data are contained in this report.

Technical Outlook Sees Support Base Hold

Have the 'Ides of March' passed for the sterling / euro exchange rate?

It has been a struggle for the pair recently with the UK currency seen in retreat for the last three weeks; it does however now appear to be building a base at 1.35.

“This level could yet act as a springboard to further gains although, to date, the ‘bounce’ is pretty tentative and a close below 1.35 way for a drop back to 1.32 or so,” notes analyst Bill McNamara at Charles Stanley.

As we can see from the below graphic, 1.3530 is an important level:

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Back in February 1.3522 acted as a significant resistance to further GBP-EUR gains, once it was broken the pair quickly raced to their best levels of 2015.

The subsequent decline saw 1.3530 halt declines and has reinforced this level as an important zone of support.

Keep an eye on 1.3830, this now forms resistance ahead of the more formidable 1.4100.

Note that the Momentum reading (signified by the red and green graph at the bottom of the graphic) is returning to positive territory.

The return to positive territory for this indicator advocates for further gains, in the near-term at least.

With UK elections due in a month’s time we simply do not believe there exists the appetite to breach either of these two levels so would suggest any return to an all-out GBP bull run remains out of the question for now.

The Eurozone’s Economy is Improving

Be aware that further sterling strength will also ultimately likely be undermined by the prospect of a strengthening Eurozone economy which should underpin the currency.

The strongest Eurozone composite PMI for 11 months, spurred on by a strong showing from the region’s services data, meant that Germany’s DAX crossed the 12000 mark.

The growth rate of the eurozone economy continued to improve in March reading at 54.0, up from 53.3 in February.

The expansion of economic activity in March was evenly spread across the manufacturing and service sectors.

Manufacturing production rose at the fastest pace since May 2014, while service sector activity increased at the sharpest rate for eight months.

Employment rose at the quickest pace since August 2011, with continued job growth registered in Germany, Italy, Spain and Ireland.

Expectations for the Eurozone’s economy have been dismal for years now and this has been reflected in the recent poor performance of the EUR.

If the area starts delivering some positive data surprises we would suggest those with requirements to convert pounds into euros should be aware that better levels may be harder and harder to come by.