Pound Surges Above 1.15 Against the Euro; Outlook Turns Decidedly Bullish

- Close above 1.15 would send a strong technical signal in Sterling's favour

- Eurozone industrial data disappoints

- ECB adds to sombre Euro mood-music with comments on inflation

The Pound-to-Euro exchange rate is on the move higher and has broken through the key 1.15 barrier following the release of sub-par Eurozone economic statistics and a sanguine assessment of Eurozone inflation held in the latest set of European Central Bank minutes.

At the time of writing 1 Pound buys 1.1561 Euros representing the best inter-bank exchange rate in ten months which ensures buying power for those holding Sterling has increased notably; by our calculations international payments can now be made at rates towards 1.1459, depending on the competitiveness of the provider.

The exchange rate had peeped above the 1.15 level on Tuesday, April 12 but was swiftly rejected by a bout of selling.

Indeed, the British currency has been trying to jump into the 1.15s for some time now but cannot appear to gather the bids to move higher, we have counted four tests of 1.15 since June 2017 and note the exchange rate has not closed above here on a single day since then.

By all accounts, a daily close above 1.15 would be significant for Sterling and suggestive that a more sustained move higher could be about to get underway.

"Even if GBP gains ultimately prove untenable prices can retrace somewhat higher first, assisted by relatively limited supply until 1.1750 or 1.2000," says Trevor Charlsey at foreign exchange brokers AFEX.

Concerning the outlook for GBP/EUR, Karen Jones, a technical strategist with Commerzbank says a close above 1.15 "is needed to confirm the market is ready" to head higher towards "the 78.6% retracement" at 1.1727.

Robin Wilkin, a FX strategist with Lloyds Bank Commercial Banking says should the 1.15 resistance break the door is opened to a testing of a "ore important" channel resistance in the 1.1554 region.

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Heavy Euro Selling

We note a good pick-up in bids for Sterling at 09:30, where a low of 1.1455 was registered; the GBP/EUR exchange rate has risen steadily since on the back of a couple of Euro-negative events:

The move higher was given legs at 10:00 on the back of some pretty poor data out of the Eurozone. Eurozone industrial production disappointed with growth coming in at 2.9% on an annualised basis according to Eurostat; markets were optimistic in looking for a reading of 3.8%.

The monthly data actually signalled contraction with the February reading coming in at -0.8%, worse than the 0.1% forecast by markets.

The data tells us that the period of consensus-busting Eurozone economic growth might now be over; indeed it was this consensus-busting pace of growth seen during 2017 that really saw the Euro catch a bid over the course of the year.

This slowing in data is consistent with data releases elsewhere and suggestive that the Eurozone is entering a period of slower growth.

The ECB have meanwhile released their Account of the monetary policy meeting held in Frankfurt on 7-8 March, and the headlines weren't helpful for the Euro and added to the soft mood-music surrounding the currency.

The ECB's governing council were in broad agreement that there was not enough evidence that inflation is sustained in the Euro area while expressing "widespread concern" over risk of trade conflicts and noting global economic risks are tilted to the downside. This suggests the Bank is in no rush to bring forward the cessation of its quantitative easing programme, tipped to end around September 2018.

Any delay to the end date would certainly hamper the single currency and open the door to further gains by Sterling.

The ECB's Governing Council members also flagged the common currency's 2018 rally as a source of concern for the ECB in a much more pronounced fashion than before, citing it as a material risk to their inflation and economic growth forecasts which could ultimately end up threatening the central bank's ambition to wind down its quantitative easing (bond buying) program later this year.

"It was remarked that recent movements in the euro exchange rate seemed to relate more to relative monetary policy shocks, including communication, and less to improvements in the macroeconomic outlook for the euro area. This suggested that the exchange rate appreciation could be expected to have a more negative impact on inflation," the ECB says.

This suggests to us that concerns over the value of the Euro could be a reason unto itself for the ECB to engage policy decisions that in turn curb the Euro's value.

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