Quotes:Pound to Euro exchange rate: 1.1590Euro to Pound exchange rate: 0.8627Euro to Dollar exchange rate: 1.1218The Euro enters the new week with the status of being one of the best-performing global currencies of the past month confirming it enjoys the benefit of positive momentum against most major competitors.

The Euro to Pound Sterling exchange rate (EUR/GBP) is currently seen at a seven-week high at 0.8612 and momentum studies confirm the Euro is to be favoured in the short-term.

Medium-term (multi-week) it is too early to write Sterling off we believe as we note indicators on the pair's chart remain in neutral territory.

Elsa Lignos at RBC Capital Markets however confirms at the start of the week that she retains a bias in favour of the Euro against the Pound.

“We have a tactical long EUR/GBP position and have suggested buying cheap options for GBP downside,” says Lignos in a client briefing released Monday, May 22.

The EUR/GBP is seen rising as markets grow increasingly nervous ahead of the June 8 election. Indeed they should as we have witnessed the Conservative party’s commanding lead in the polls slashed over recent days.

“Markets appear to be pricing in a Conservative majority of 130–150 seats on June 8. While that, and the premium GBP carries as a result, could continue to rise, we think it more likely that both will partially reverse,” says Lignos.

The Euro to Dollar exchange rate (EUR/USD) is meanwhile near seven-month highs at 1.1190 with the short and medium-term trends being in the Euro’s favour.

But, questions are being asked as to whether the Euro is overpriced in some quarters.

“The extension of the rally above the 1.1200 handle has likely exhausted the current move with the RSI and Stochastic Oscillators now trending sideways within overbought territory,” says Steven Knight at Blackwell Global Investments Limited.

What to Watch Over Coming Days

Key sentiment indicators are up for release this week, with Tuesday’s German ifo business climate index of particular interest.

Financial market participants are upbeat, as already indicated by the ZEW survey.

“Accordingly, the outlook for the ifo index is positive even though the survey is of companies and not of financial market experts and institutional investors as in the case of the ZEW. The economic outlook for Germany is favourable, with the German economy having already grown 0.6% q/q in the first quarter,” says Ralf Umlauf at Helaba Bank in Frankfurt.

The outlook also for other Eurozone countries remains to be solid, as likely to be signalled also by the release of flash purchasing managers indices (PMIs) on Tuesday.

“Even if slight corrections should occur, the levels are well in expansion territory and significantly above the long-term average,” says Umlauf.

The April PMIs showed the Eurozone enjoying a strong start to Q2, with activity picking up further from Q1.

There was some weakening in the forward-leaning sub-indexes, suggesting that some cooling off in the rate of improvement is likely this time round.

"We still look for the composite PMI to remain ahead of its Q1 average of 55.6, although it will be challenging for Q2 growth to surpass its Q1 pace of 0.5% q/q," says RBC Capital's Lignos.

Against this backdrop, the European Central Bank has enough arguments at hand to adjust its forward guidance, as hinted at by numerous ECB officials – including President Draghi recently.

For the Euro what really matters is how the ECB responds - will it withdraw that stimulus which has for so long kept the value of the Euro under pressure?

If so then a more sustained and longer-term rise in the value of the currency can be imagined.

But the ECB will want to see clear evidence of rising inflation before it hints that it might start raising interest rates and cutting its support via the quantitative easing programme.

Indeed, inflationary pressure has been contained so far but we do get new inflation data next week.