The British pound fell in the markets yesterday, amid disappointing statements from the EU over the post-Brexit trade deal. In addition to that, the coronavirus continues to spread in the UK, which forces authorities to resort to another strict social distancing measures, which has a negative effect on the UK economy.
On the first day of negotiations, not much progress has been made, as the EU only reaffirmed that the Brexit transition period ends on December 31, 2020. This gives light to the idea that the EU does not intend to make any concessions over the trade agreement, despite all the indignation and alternative scenarios that the UK is ready to apply in the event of a tough Brexit and breakdown of previous trade relations. Such disappointing news dropped the pound down in the markets, thereby knocking all the traders who bet on a rise after being under the impression that the two parties would finally agree to a deal.
Now, the pound is trading at a quote of 1.2850, and a breakout from which will immediately bring it to a price of 1.2800. Such will also make it easier for the GBP / USD pair to reach a new local low, which is 1.2740.
But if good news arises, that is, the UK and the EU finally signs a deal, the pound could return to a price of 1.2950, which will make it easier for the bulls to increase the pound towards a quote of 1.3010 or 1.3085.
EUR / USD
Much like the pound, the European currency is also experiencing growth problems, not only because of the weak statistics for the euro area, but also because of the implementation of another strict social distancing measures.
Yesterday, German Chancellor Angela Merkel announced additional measures to combat the spread of the coronavirus, requiring citizens to wear protective masks in public places. As for the regions that record high levels of incidence rate, bars and restaurants that open late at night will be closed, and no more than 10 people are allowed at parties.
The UK government also announced additional restrictions to slow the spread of the coronavirus, imposing a ban on household gatherings and parties.
As of the moment, Europe is in a bad situation, in which if the incidence rate continues to rise, its GDP will collapse to much record lows. This is because new restrictive measures will affect the service sector, since the authorities will be forced to close bars, restaurants and shops. It will also negatively affect the confidence of consumers and companies.
However, this scenario could be avoided, but it is on the grounds that a vaccine against the coronavirus is finally invented. In this case, the EU economy could recover by 2.0%.
With regards to economic statistics, a rather weak data on the US labor market was published yesterday, the figures of which clearly show that recovery is slowing down. The report of the US Department of Labor indicated that initial jobless claims for the week of October 4-10 rose by 53,000, amounting to 898,000.
Meanwhile, business activity in the area of Philadelphia Fed continued to grow in October, reaching 32.3 points against 15 points in September. Economists expected the indicator to come out at only 14 points.
In line with this, San Francisco Fed President, Mary Daly, said the economic outlook of the United States will be weaker, if the government does not allocate additional measures of fiscal support. Until now, the Republicans and Democrats have not agreed on a new package of economic assistance, however, it is unlikely to be done before the US elections this November. Daly said a weaker-than-expected prospect will prolong the Fed's current response, but it is still too early to talk about a change in the volume of asset purchases, since the Fed does not need new tools to withstand economic difficulties.
As for the technical picture of the EUR / USD pair, demand for the euro will remain low today, on the grounds that the bears manage to bring the quote below the level of 1.1685. Such will also make the pair reach new lows, at a level of 1.1645 or 1.1600.
The euro will only see a rise if traders manage to return the quote to the level of 1.1725, as such will knock out many sell limits, and will bring the quote to the highs 1.1770 and 1.1830.