The EUR/USD currency pair surged up to 1.2309 after the Brexit Deal but was unable to continue its uptrend. The Euro drifted lower to 1.2210 after the surge.
The agreement between Brussels and London brings in new security relationships and rules.
European countries may face severe lockdown restrictions with the spread of the new strain of virus attacking the region. Germany has brought in restrictions with more countries to follow, as the cold winter hampers recovery. The United Kingdom has announced a third nationwide lockdown. The US is struggling with the contagious virus attacking various parts of the country.
EUR/USD Unable to Move Past 1.2308 after Brexit Deal
The Euro against the Dollar moved to fresh highs of 1.2310 on Wednesday but was unable to move further up. It took support at 1.2210 levels, but the currency pair has not gained momentum to travel north.
The EUR/USD has strong support at 1.2280, and any decline below this support will bring a sharp drop in the Euro. The Euro has to move above 1.2300 to stay positive against the weakening US Dollar.
However, on Tuesday, 5 January, the EUR/USD currency pair was trading just below the 1.2280 mark at 1.2272, GMT at 1.36 pm. It is expected to take support at 1.2250 or 1.2220.
The European Union after the Brexit Deal
The single currency is just below the 1.2280 regions and is expected to move on with a negative bias.
The Brexit drama has come to an end with Britain's exit from the European Union. It was a long transition period that allowed for trade talk negotiation between the two regions. The 1,200-page deal was arrived at with no new tariffs between Britain and the EU.
The trade deal was passed in the UK Parliament and the House of Lords on 30 December, avoiding WTO tariffs on goods in the New Year 2021. The Brexit Withdrawal agreement gained approval in the European Parliament on Wednesday.
Importers and exporters will face new enforcement and regulatory barriers, which will pose problems and delays. The trade agreement does not address the service sector, which forms 80% of British exports. The European Union is the nearest trading partner of the UK, and both countries cannot distance themselves easily from each other.
Brexit Affects Cross-Border Share Trading System
The financial sector of the United Kingdom faces abrupt changes on the very first day of 2021. Almost €6 billion shares dealings have drifted away from London to the European regions. Share trading hubs like Turquoise, Cboe Europe, and Aquis Exchange have shifted to the Eurozone, in venues set up to cater to the Brexit changes.
New Strains of the Virus Brings in New Lockdown Measures
The spike of the coronavirus infection in the UK and Europe has brought in lockdown again. Restrictions are imposed on various European countries. Scotland is expecting another lockdown. The first quarter of the New Year was expected to be good across the globe, but the current lockdown has dampened the economic bounce.
New strains are located in many parts of the United Kingdom, New Zealand and South Africa, with strict lockdown steps taken to contain the coronavirus.
Vaccination efforts continue, but the corona surge is worrying leaders. The first vaccine from AstraZeneca and Oxford gained approval last week. Experts fear that the virus may cause further damage in the weeks to come.
EUR/USD rises despite Covid cases increasing and lockdown restrictions.
Manufacturing PMI Numbers
PMI numbers are expected from many countries in the Eurozone. Manufacturing data in Europe has been good. The manufacturing sector in Europe is at 55.2 while it was at 55.5 in November.
In Spain, Manufacturing PMI is at 58.0 in December, while it was 55.2 in November, providing good numbers. Italian PMI is slightly better in December with 52.8, from the previous month at 51.5. In France, the Manufacturing PMI is the same for both November and December at 51.1.
German Retail Sales month on month has gone down from 2.6% to 1.9%. Unemployment Change in Spain has gone up this month, according to data released.
Euro Gains Strength with the Weakening US Dollar Index
The US dollar has started the year on a weak note. Equity markets are moving to new high levels, while the US Dollar Index is dropping. The US Dollar continues its downtrend in the New Year. Interest rates are expected to remain low and are weakening the greenback. Investors are losing confidence in the greenback, which was considered a safe-haven. US dollar has weakened as investors prefer to move away to other currencies.
The Senate election in Georgia on 5 January is important as it determines who takes control of the Senate.
The US Dollar has declined below its support at 89.75. If it slides further, the USD may decline further to 89.50 levels. The US Dollar is weakening against a basket of other currencies. As the US Dollar Index moves lower, it is bullish for the EUR/USD currency pair.
The GBP/USD currency pair has declined to 1.3599 moving lower from resistance at 1.3700 levels on Tuesday, 5 January 2021. Prime Minister Boris Johnson has brought in the Tier 4 lockdown, pushing the GBP/USD lower.
The EUR/GBP is trading within a range, between 0.8850 and 0.9100 levels. Currently, it is at 0.9019 tradings above the day's low.