On Monday, a new virus strain broke down the EUR/USD, while the Brexit deal is driving the Euro against the Dollar higher on Tuesday, with a positive news flow.
It was a roller coaster session for the Euro and the British Pound on Monday and Tuesday with the new virus bringing despair, while the Brexit news infused a positive move into the forex market.
The viral infection and the Brexit headlines continue to dominate the direction of the sterling and the single currency. No agreement was reached over the weekend, but talks continue positively between the two regions.
Brexit News Breathes Hope into the EUR/USD
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There is room for optimism on the Brexit deal, with both sides giving up ground on the fishing issue. UK fishing waters was the main sticking point that kept negotiations apart.
Level playing field issues are getting resolved and getting closer to an agreement. A trade deal can be expected next week before the New Year dawns, as both sides move closer to a compromise if all goes well, say experts.
The British Pound has recovered against the Dollar and the Euro on Tuesday, suggesting that the deal between the UK and the EU may take place. The key sticking point was fisheries, and now both sides are giving up ground on the fisheries issue. The European countries want more access to the abundant fishing waters of the United Kingdom, while the UK is not relenting on its waters. Both parties have to compromise to keep talks moving.
The GBP/EUR fell to 1.08450 on Monday but recovered to 1.0980 on Tuesday. The Pound to US Dollar recovered from 1.3180 lows on Monday to 1.3420 levels on Tuesday.
EUR/USD Takes Support at 1.2130 after New Covid Strain Attack
A new variant virus strain is detected in the United Kingdom. Flight bans to and from the UK are disrupting trade and travel in the region. Many European countries have taken precautionary measures to prevent the spread of the viral strain from England, by bringing a ban on flights and freight movement into the United Kingdom.
Health Secretary Matt Hancock of UK says that the “novel variant is out of control”. Scotland’s Nicola Sturgeon has asked PM Boris Johnson to get more time to negotiate talks. The new virus requires 100% concentration, she says. However, PM Johnson has rejected the call to extend the transition period after 31 December.
Vaccines are now taking a backseat with infection rising from the new virus. The Pfizer/BioNTech vaccine will be administered once the European Medicines Agency gives its approval. The American Foods and Drugs Administration has approved the Moderna vaccine too. The vaccine from Pfizer/BioNTech is already deployed in Britain.
Roller Coaster Ride for EUR/USD with New Virus and Brexit News
It was a roller coaster ride for the EUR/USD pair when the new virus strain infection crushed the Euro to the USD currency pair. However, the currency pair shot up with positive news coming from the Brexit deal.
The EUR/USD crashed lower on Monday below 1.2200 levels to touch 1.2130, when the new virus strain was reported in many parts of the United Kingdom, though it recovered intraday. The Euro against the Dollar resumed trading on Tuesday, at above 1.2220 levels. The forex market saw some calmness enter investor mind as the currency pair moved with positive momentum from the Brexit negotiations.
The EUR/USD has a strong support line at the 1.2100 level, while the 1.2040 level is the monthly low. On the upside, 1.2230 will be a strong resistance for the Euro.
On Monday, the Euro plunged during the early trading hours as investors moved out of the single currency into the safe-haven US Dollar. The immediate ban on international flights has hit the supply chain in the United Kingdom. The Euro and the British Pound saw a steep fall on Monday but recovered intraday. On Tuesday, trade was much calmer, especially with the Brexit news showing positive direction.
For the week, Investor Confidence data in the Eurozone has improved from -18 in November to -14 in December. German PPI has increased to 0.2% from the previous month by 0.1%. Current Account in Europe has increased from 25.2 billion to 26.6 billion. The figure is much above the forecast at 22.6 billion. Trade Balance has improved from 23.7 billion to 25.9 billion, much above the expected 22.1 billion figures. Flash services have improved from 41.7 to 47.3.
USA Stimulus Package
A new stimulus package in the United States is announced.
A deal has been reached between the White House and Congress leaders to provide an additional stimulus of $900 billion. Individual checks for $600 will be given. Weekly unemployment benefits are to be increased by $300. The stimulus will include benefits to small businesses, vaccine distribution, and government spending. US House Speaker Nancy Pelosi made the official statement regarding the Covid-19 stimulus.
Once the Joe Biden administration takes over, more federal support can be expected in the New Year 2021. However, the new virus strain is taking effect on the health of people and the fragile economy that has not recovered from the first infection.
