Euro Exchange Rate: EUR Powers Higher as Improving Economic Picture Brings Faith Back to the Euro

By Will Peters

Euro rates are today higher across the board thanks to an improving economic picture in Europe which could challenge the notion that the euro will underperform in 2014.

A look at the latest spot euro exchange rates shows:

• The euro dollar exchange rate is 0.66 pct higher at 1.3637.
• The euro pound exchange rate is 0.55 pct higher at 0.8219.
• The euro Australian dollar exchange rate is 1.46 pct higher at 1.5530.

Note: Our EUR quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Driving an improved sentiment towards the euro were flash PMI readings from both Germany and France which showed an improvement with the exception of slight miss of German PMI services report.

France which has been a horrid laggard and a drag on Eurozone growth finally saw an uptick in activity.

"Although both PMI remained below the key 50 reading, French Manufacturing PMI rose to 48.8 from 47.6 the month prior while Services increased to 48.6 from 48.2. Sentiment may have improved after President Hollande changed his rhetoric this month to assume a more business friendly posture," says Boris Schlossberg at BK Asset Management.

Meanwhile in Germany private business conditions rose to a 31 month high as PMI Manufacturing hit 56.3 versus 54.7 eyed while services registered a reading of 53.6.

"The strong man of Europe continues to massively outperform the rest of the region and is carrying the EUR/USD on it shoulders as the pair rose to within a few points of the key 1.3650 level in response to the positive data," notes Schlossberg, "if Eurozone continues to generate organic growth as the year proceeds, the need for further accommodation from ECB will decline sharply and the euro could see further strength, challenging the yearly highs at 1.3800 in the foreseeable future.

Euro exchange rate action over the past 24 hours

Today's improvement in the major euro exchange rate pairings comes in stark contrast to recent price action seen in the shared currency.

The euro firmed above late-November lows against the US dollar, but it slipped to its lowest in a year against the resurgent U.K. pound.

"Euro upside looks limited in the run up to the Fed’s Jan. 28–29 meeting, with markets bracing for another reduction in the bank’s monthly bond purchases," warns Joe Manimbo at Western Union.

Outlook for euro dollar exchange rate today

Concerning the technical outlook for the euro, Swissquote Research advise clients today that they remain sellers of the euro and today's rally could offer good selling levels:

"EUR/USD traded in the tight range of 1.3530/58 in Asia. The key support zone is at 1.3500/24 (fibo 61.8%), resistance is seen at 1.3595 & 1.3665 (fibo 50% & 38.2%).

"Technically, the 21-dma (1.3440) tests the 50-dma (1.3636) on the downside, the MACD is steadily negative. We remain sellers on rallies. Stops are seen below 1.3500."

Further technical levels for the euro dollar exchange rate are supplied by Luc Luyet at MIG Bank:

"EUR/USD continues to bounce after having posted a new lower low at 1.3509. Hourly resistances are given by the declining trendline (around 1.3620) and 1.3650 (16/01/2014 high). Another resistance lies at 1.3699. Supports can be found at 1.3509 and 1.3490."

With regards to the euro sterling exchange rate, Piet Lammens at KBC Markets expects any setbacks in the pound's rally to be temporary:

"We expect any setback in sterling (especially against the euro) to be limited. Yesterday’s break below 0.8225 deteriorates the technical picture of EUR/GBP further. In case of a risk-off correction, we expect cable to outperform EUR/USD, keeping EUR/GBP under pressure. So, we continue to see upticks as an opportunity to sell. The topside in cable might be more difficult with important resistance looming in the 1.6603/1.6747 area."

So we continue to see a mixed picture for the euro at present, particularly against the US dollar. We need to see a few higher closes before we can say we are entering a new run higher in the exchange rate.

At Pound Sterling Live we predict this pair will continue to muddle along making it a tricky customer to predict, especially once the theme of the US Fed taper comes back into focus which it is bound to do once today's Eurozone data is forgotten.