During the European session, the euro strengthened against the dollar more slowly than the pound, as buyers came under pressure from euro selling in the EURGBP cross pair. As soon as the cross turned sharply higher (the single currency was bought for the pound), the euro retraced to its intraday high at 1.2177.
The euro traded up monetarily to 1.2177. From there, the price dropped by 54 pips to 1.2123. The single currency tracked cable sharply lower as the US dollar strengthened across the board. No Brexit news came out. The downturn was a reaction to remarks by British Health Minister Matthew Hancock, who stated that a new strain of coronavirus has been discovered in recent days.
Investors have started buying into the dollar, fearing that the vaccine will not help rein in the spread of the coronavirus, and London will tighten restrictions as the Covid-19 infection rate continues to spiral higher. New York authorities have also announced the possible introduction of a hard lockdown due to a spike in the infection rate.
Today’s macro agenda (GMT 3)
10:45 France: CPI (November)
16:15 Canada: housing starts (November); 16:30 manufacturing sales (October)
16:30 US: NY Empire State manufacturing index and import prices (November)
17:15 US: capacity utilization and industrial production (November)
Major currencies have been showing a mixed picture in Asian trading. At the time of writing, the euro was trading at 1.2148. EUR and GBP crosses are trading in positive territory, which is good for buyers. No market-moving data is due out of Europe today. The market will continue to come under pressure from Covid-19 and Brexit-related news.
As for today’s forecast, we expect the EURUSD and GBPUSD pairs to move along a downward trajectory. Cable will decline faster than the euro. Moreover, it makes sense to track the change in sentiment for the EURGBP cross pair. Sterling would do well to close the gap today (1.3218).
The pound sterling currently tops the leaderboard in terms of profitability ( 0.13%). If the 1.3300 level is breached, downside in the pound will gather momentum, and it could drag other currencies into the red.
Meanwhile, the outlook for the euro is ambiguous. Given the tight lockdown that is set to begin in Germany on December 16, we expect to see a step down to 1.2106. Players are advised to carefully watch for breaking news.