Currency Market Analysis

Dec 23, 2020 | Currency Market Analysis

Global Themes

Please note that the Daily Market Update will not be published from December 24, 2020 to January 3, 2021, we will be back on January 4, 2021.

GBP

Scientists seem to agree that vaccines will work against the new coronavirus variant discovered in the UK, easing the market mood. France agreed to open its border with Britain to trucks and EU passengers, conditioned on a rapid coronavirus test. The Franco-British arrangement is set to dissolve the massive traffic jam leading to the Dover port. Chief EU Negotiator Michel Barnier said talks are at a "crucial point" with eight days to go until the transition period expires. Some speculate a deal could be reached on Wednesday, while a delay or a no-trade Brexit remains on the cards.

 A fall in British business activity deepened after the country began to tighten coronavirus restrictions again last month, the Confederation of British Industry said on Wednesday, calling for more support for businesses from the government. British businesses are also facing uncertainty about the country's trading relationship with the European Union ahead of the Dec. 31 expiry of a post-Brexit transition period. Economists say that an extension of the latest coronavirus restrictions into January could push Britain's economy into a new recession, albeit a less severe one than in 2020.

 The European Union is ready to continue negotiations with Britain past the end of the year, two diplomatic sources told Reuters on Tuesday after an update on Brexit by the bloc's negotiator, Michel Barnier. "Progress has been made. Most issues are preliminarily closed or close to being agreed. However, differences on fisheries remain difficult to bridge," said one EU diplomat. "Unfortunately, the EU is not moving enough yet to clinch a deal on fisheries." EU negotiators are "in a last push" to seal an agreement but added: "The EU will not close its door to the UK and remains ready to negotiate beyond the 1st of January."

GBP/USD bulls in control as resistance awaits at 1.3445, the daily high, followed by 1.3475, 1.3535, and 1.3622. Support is at 1.34, the round level, and then by 1.3305, 1.3225, and 1.3190.

USD

Investors are expected to favour riskier assets heading into 2021 and a weakening US Dollar will help boost this demand. The Federal Reserve (FED) has set interest rates in the US at record lows, a massive influx of financial stimulus, all criteria’s which allow investors’ appetite for risk to grow.

The US Dollar Index has dropped a massive 6% year to date, which puts this year on track for its weakest performing year since 2017. With the Dollar offering very little appeal to investors riskier assets and higher seeking yields will be the trades market participants will seek. Declines in the dollar tends to impact the prices of commodities, which are predominantly priced in US Dollars. The weakening dollar will make said commodities cheaper which may hopefully lead to economic growth.

EUR/USD remains around the $1.22 handle this morning, gaining over 9% vs the Dollar this year. The $1.25 remains a strong focus for traders next year, many eye this level as the next big psychological level for the pair.

US President Donald Trump last night threatened not to sign the recently approved COVID relief Bill which amounts to $892 billion. The President said he wants Congress to increase the amount in the stimulus checks to $2,000 for individuals or $4,000 for couples, instead of the "ridiculously low" $600 for individuals that is in the bill.The comment by the President would mean that the cost of the bill will exceed $1 trillion however the longer the aid is delayed could lead to temporary governmental shut downs which happened back int 2018. The US Dollar index remains little impacted overnight.


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