Search ForexCrunch
  • EUR/USD has eased back below the 1.2200 level in recent trade as confirmation of a Brexit deal remains elusive.
  • The pair still trades with reasonable on-the-day gains, however, amid the continued positive tone to risk appetite.

The Dollar Index (DXY) has been allowed to recover from 90.15 lows to current levels in the 90.40s, as GBP/USD and other USD majors such as EUR/USD wane from highs. At present, EUR/USD trades close to 1.2180, up around 0.2% or nearly 20 pips on the day. Hopes that a Brexit deal would be announced as early as tonight have not yet materialised, but a deal is clearly still on the cusp of being had and the market’s broader appetite for risk remains positive.

Indeed, the S&P 500 currently trades around 0.4% higher, the VIX is lower, crude oil markets are higher (WTI +2.2% and back at $48.00), Industrial metals prices are higher and bond yields are higher (US 10-year +3.5bps). Meanwhile, despite its recovery from lows, the DXY still trades lower by around 0.2% and fellow safe-haven currencies JPY and CHF are also underperforming.

Brexit Latest: Confirmation of deal remains elusive

UK PM Boris Johnson and EU Commission President von der Leyen both pulled out of issuing statements on the state of Brexit negotiations, as previously indicated. Perhaps it is taking a little longer to finalise the text of the deal than expected, or perhaps negotiating teams have run into fresh problems/sticking points. Most analysts still expect that a deal will be announced at this point given that 1) there seems to have been a major breakthrough on what had been the most difficult issue (fisheries) and 2) both sides seem keen a deal done to bring home before Christmas.

But it looks as though those hoping for finality and confirmation of a deal to be announced have thus far been left wanting and Brexit news flow has gone quiet over the last hour or two. That does not mean that things couldn’t suddenly fire up again; if a deal has actually been finalised, the news will likely be leaked to the press via sources first, ahead of an official announcement, which could also happen at any time. It could be a volatile Thursday Asia Pacific session for FX markets.

Euro facing Covid-19 risks

The focus of the worsening state of the Covid-19 pandemic in Europe appears to be shifting from the UK to the EU as well, with recent announcements from the Irish Health Authorities having alarmed; The Covid-19 reproduction rate in the country is estimated to have surged to 1.5-1.8, its highest levels since March, with preliminary data suggesting that the new UK variant is present in the country.

This might serve as a Canary in the coal mine for the rest of the EU; cases of the UK variant have already been detected in Italy, Denmark and the Netherlands. Any sudden spikes in the R rate in any of these other EU countries likely implies the new UK variant is on the loose. This would almost certainly prompt tougher lockdown measures.

Remember also that the EU has lagged the UK significant with regards to approving the safety and efficacy of the Covid-19 vaccine; the UK had already given half a million Brits their first dose of the Pfizer/BioNTech vaccine. The EU has barely started.