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  • EUR/GBP has slid back towards 0.9000 from 0.9100 amid hope a Brexit deal is about to be announced.
  • Buyers have kept the pair supported above 0.9000 for now, but confirmation of a Brexit deal could trigger more selling.

Amid reports that the EU and UK are on the cusp of reaching a Brexit deal, EUR/GBP has slid from Wednesday opening levels around 0.9100 and to hit daily lows of pretty much bang on the 0.9000 level. Buyers have surged in at this level, however, and the pair has been pushed higher to trade in the 0.9030s, though is still down around 70 pips or nearly 0.8% on the day.

Traders seem uneasy to push EUR/GBP convincingly below its 21 and 50-day moving averages (DMA) at 0.9031 and 0.9010 respectively, as well as the psychologically important 0.9000 level without official confirmation that a deal has been agreed. Note that just below the 0.9000 level also resides the pair’s 200DMA, which currently trades at 0.8984. Below that, the next levels of note are the psychologically important 0.8900 and the mid-May, early September and mid-November lows which come into play in the 0.8860s.

It seems likely that EUR/GBP could test these levels in case of confirmation of a deal, though rising concern regarding the worsening state of the pandemic in the UK might cap any further GBP gains…

1) A record 39.2K cases were reported on Wednesday and daily deaths rose to 744, only about 250 away from the daily death count highs from back in April.

2) It was confirmed that lockdown restrictions will be tightened across most of the country from Boxing Day (Saturday), including many areas following London and the South East into Tier 4 (the same as the national lockdown back in November). Many expect a full national lockdown to be re-implemented in the new year.

3) The rapid rise in cases seems to be being driven by the new, more transmissible Covid-19 variant that is though to be spreading in schools (so schools might remain shut in January). Meanwhile, two cases of the concerning new variant first detected and currently spreading in South Africa have been found in the UK. Flights from the country have been stopped and all recent arrivals are being ordered to immediately self-isolate.

Brexit Latest: Deal within arm’s reach

There has been no official confirmation that a deal has yet been reached, but multiple sources have told numerous UK media outlets that a deal is close. The official comment from EU officials is that “talks are in the final phase” and Brussels based sources said that EU leaders have begun preparations for the provisional application of a new UK trade agreement as of 1 January 2021 (meaning that a deal can be immediately ratified without needing to go through the European Parliament, who will confirm the deal at a later date).

Latest reports suggest that, subject to the approval of the agreement by EU leaders, a Brexit deal could be finalised as soon as 19:00GMT on Wednesday. UK media thinks a statement of confirmation will be released. But sources are urging that things are still not 100% just yet.

EUR/GBP four-hour chart