Major currencies closed the week higher. The steepest gains against the US dollar were shown by the British pound (+2.30%). The Australian dollar rose 1.19%, the euro 1.18%, the Swiss franc 0.75%, the New Zealand dollar 0.73% and the Japanese yen 0.63%. Topping the losers board was the Canadian dollar, down 0.10%.
The EURUSD pair traded down 0.11% to 1.2252 on Friday, December 18. The single currency was under pressure amid broad-based dollar gains on the back of protracted UK-EU negotiations and a delay in the passage of a $908 bln coronavirus stimulus bill stateside. Furthermore, the US dollar may have appreciated as investors recalibrated their adjustments ahead of Christmas and New Year’s holidays.
British Prime Minister Boris Johnson said the most likely outcome for UK would be a no-deal Brexit. President of the European Commission Ursula von der Leyen and chief EU negotiator Michel Barnier also said that fishing issues are difficult to resolve and there may not be enough time to reach a trade agreement by the deadline.
In the North American session, the EURUSD pair dropped to 1.2226. The single currency drew support from euro crosses, so the balance line kept the price from falling further.
Today’s macro agenda (GMT+3)
14:00 UK: distributive trades survey (December)
18:00 Eurozone: consumer confidence (December)
In Asian trading, the euro is trading at 1.2196, off an earlier low of 1.2179. The pair has dropped 73 pips so far. The British pound fell 185 pips to 1.3336. Cable shed more than 1% as the UK and the EU remained deadlocked in post-Brexit trade deal talks as of Sunday evening, December 20. Negotiators failed to meet the deadline recommended by the European Parliament. At this point, the European Parliament would not be able to ratify a trade deal under the simplified scheme by the end of the year even if it is approved. The talks are set to resume on Monday, December 21.
Also, news that many countries are closing their borders with Great Britain due to the spread of a new strain of coronavirus could exert a negative impact on the euro and the pound. A hard lockdown will be imposed in the UK on Monday, with all non-essential stores to be closed. Residents are prohibited from leaving their homes under threat of a large fine. Since the news was reported over the weekend, major decisions on new restrictive measures are expected today.
The price action is currently hovering at the 67-degree angle. Considering the morning news and the market opening, I expect the euro to decline further to 1.2165. Although most euro crosses look bullish, the single currency will weaken on the back of overall dollar strength near the end of the day. Resistance is at 1.2230 (the balance line). The euro can be expected to sink by 2-3 pips on the hourly TF.
Positive news flow is needed to bridge the gap. Thus far, this news is nowhere to be seen aside from passage of the Covid-19 relief bill stateside. It should also be noted that Christmas holidays start in the US on December 24. Due to the vacation schedule, market volumes will be razor-thin amid heightened volatility.