EUR / USD declines returning below 1.2200 as confirmation of Brexit deal remains elusive

• EUR / USD has pulled back below the 1.2200 level in recent trading as confirmation of a Brexit deal remains elusive.
• However, the pair is still trading at reasonable gains on the day, amid the continued positive tone of risk appetite.

The Dollar Index (DXY) rebounded from the lows of 90.15 to current levels at 90.40, as GBP / USD and other major USD rates such as the EUR/USD dropped from highs. Currently, the EUR / USD is trading near 1.2180, up about 0.2% or nearly 20 pips on the day. Hopes for a Brexit deal to be announced as soon as tonight have yet to materialize, but it is clear that a deal is still on the cusp and the broader market appetite for risk remains positive.

In fact, the S&P 500 is currently up about 0.4%, the VIX is down, crude oil markets are higher (WTI + 2.2% and back to $ 48.00), industrial metal prices are higher, and yields are higher. the bonds are higher (US 10 years +3.5 bps). Meanwhile, despite its recovery from lows, the DXY is still trading down around 0.2% and safe-haven currencies JPY and CHF also underperform.

Brexit: Deal confirmation remains elusive

British Prime Minister Boris Johnson and EU Commission President von der Leyen have withdrawn from issuing statements on the status of Brexit negotiations, as indicated above. Perhaps it is taking a little longer to finalize the text of the agreement than expected, or perhaps the negotiating teams have encountered new issues / sticking points. Most analysts are still waiting for a deal to be announced at this point given that 1) there appears to have been a breakthrough on what had been the most difficult issue (fishing) and 2) both parties appear to be interested in reaching a deal before Christmas.

But it seems that those who were waiting for the finality and the confirmation of an agreement that would be announced so far have been left wanting and the flow of Brexit news has calmed down in recent hours. That doesn’t mean that things can’t suddenly turn back on; If an agreement has been reached, the news is likely to first leak to the press through the sources, before an official announcement, which could also happen at any time. It could be a volatile session on Thursday in Asia Pacific for the currency markets.

The euro faces the risks of Covid-19

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 Irish health authorities causing alarm; The Covid-19 reproduction rate in the country is estimated to have risen 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 could serve as a target 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 increase in the R rate in any of these other EU countries probably implies that the new UK variant is on the loose. This would almost certainly lead to stricter blocking measures.

The EU has lagged far behind the UK when it comes to approving the safety and efficacy of the Covid-19 vaccine; the UK had already given half a million Britons their first dose of the Pfizer / BioNTech vaccine. The EU has only just started.