Euro Exchange Rate: Sell EUR on Strength Suggest Analysts

Euro strength could prove temporary in nature say analysts after weeks of gains.

The recent strong UK data should also keep the GBP in out-performance mode and so remain bearish EURGBP. - Lloyds Bank.

However the pound sterling continues to offer resistance to further euro strength ensuring the pair remains capped below the 0.74 area.

Risks to the euro exchange rate complex are growing with rumblings from key decision makers that the quantitative easing programme may need to be extended beyond September 2016.

If this view gains more traction over the course of the coming week we could well see the euro to dollar exchange rate retreat.

This would open the door to losses right across the board.

Sowing the seed for potential euro weakness over coming days was ECB Vice President Vitor Constancio who opined that the central bank could expand its €1.1 trillion QE programme, if needed.

ECB President Mario Draghi is testifying in Brussels next week and like his counterparts at the central bank, he will most likely remind us they stand ready to increase Quantitative Easing if necessary.

Latest Pound/Euro Exchange Rates

	Live: 1.1448▲ + 0.04% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1059 - 1.1105
**Independent Specialist	1.1288 - 1.1334 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Any such hint could see the euro exchange rate complex sink like a stone.

“Clearly the European Central Bank is worried about the outlook for the economy and the persistently low level of inflation so while boosting the size of their Quantitative Easing program is ten times more complicated for the ECB than for the BoE, Fed or BoJ, the mere notion that they are considering increasing stimulus should be enough to cap the EUR/USD rally above 1.15,” says Kathy Lien, a professional trader at BK Asset Management.

Watch Eurozone PMIs, Sell Euro Strength

For a look at fundamental euro drivers watch the next release of the Eurozone PMI series.

The data comes on the same day that Mario Draghi is scheduled to speak - concerns of Eurozone policymakers need to be validated by economic data.  

“Economists are looking for weaker growth in the manufacturing and service sector and if they are right it will reinforce our view that selling EUR/USD into the post FOMC rally is one of the smartest trades,” says Lien.  

According to the recent ZEW survey, current conditions in the Eurozone economy improved but the outlook is gloomy.  

In addition to Eurozone PMIs, the German IFO report is also scheduled for release, making next week an important market moving week for the currency.

Could the Pound Sterling / Euro Rate Recover? Lloyds Bearish on EURGBP

The Pound's performance against the euro is interesting as the euro has tended to benefit when equity markets drop.

Recent weakness in the GBP/EUR has occurred alongside the Chinese market stresses.

However, “when the market refocuses on the individual interest rate narratives for the Eurozone and the UK the Pound should reverse this situation. In short, in the near term £/EUR is likely to remain range bound with the potential of higher prices the longer we go on,” says Trevor Charsley at currency brokers AFEX.

Lloyds Bank say they believe the EUR should remain an under performer and will be listening to the European speakers later today for any hints about the risk of further stimulus.

"While we are looking for EURUSD to gradually decline back towards the lows set earlier this year around 1.0450, the recent strong UK data should also keep the GBP in out-performance mode and so remain bearish EURGBP. Support in the former lies at 1.11/1.1090 and in the latter .7240/.7190. We look for a break of these levels to open further weakness," say Lloyds.