GBP/EUR 0.25 pct Higher Thanks to CBI Industrial Trends - "Continual good news from the UK manufacturing sector"

Wednesday brings with it further confirmation that the UK economy is on the path to recovery:

"UK CBI manufacturing output expectations balance +25 vs +15 in July, order book balance 0 vs -12 in July (highest since August 2011)" report Markit Economics.

"Continual good news from the UK manufacturing sector - highest in 2 years," point out foreign exchange providers World First.

Euro Remains Strong as Funds Flow out of Emerging Economies, GBP/EUR back above 1.17

An important provider of recent GBP and EUR strength over the past month or so has been the repatriation of funds from emerging economies. As European investors return their assets from these high yielding economies they drive up demand for the shared currency. 

Yesterday's Euro rally can certainly be explained by such flows. However, GBP is also likely benefiting from such a dynamic, and further gains are expected particularly when we consider the outperformance of the UK recovery.

Sasha Nugent, Analyst at Caxton FX says:

"The euro’s gains were partly attributable to optimism regarding PMI data due tomorrow as well as Fed tapering fears causing a repatriation of funds from emerging economies. We expect GBP to regain strength against the euro back towards the 1.17 level."

Short-Term Outlook for The Euro to Pound Exchange Rate (EUR/GBP)

Turning to the charts we see the near-term outlook for the Euro to Pound remains bearish. Geoffrey Yu at UBS says:

"With the trending/momentum indicators pointing lower, there is potential for a move below support at 0.8469 and test the important support at 0.8398. Resistance is at 0.8610."

Luc Luyet says despite yesterday's recovery the bigger picture favours further losses:

"EUR/GBP bounced yesterday close to its long-term rising trendline (around 0.8504). A minor recovery could be seen, but, in the broader picture, further weakness towards the 200 day moving average is at least expected. A key resistance stands at 0.8623 (08/08/2013 high).

"Price action seen since the annual high at 0.8815 is deemed to be part and parcel of a larger corrective phase which may eventually retest under the 0.8411-0.8398 (26/04/2013 low) region."