Euro up on ECB, pound jumpy on Brexit

Euro higher as ECB unleashes more stimulus

The euro rallied a little after the ECB announced a raft of measures aimed at maintaining support for the euro area economy. The measures including an increase of EUR500 billion in the PEPP envelope – all of which need not be used – and a nine-month extension to the program, as well as a 12-month extension to TLTRO III and four additional PELTROs next year.

The package was substantial but broadly in line with what the market was expecting which probably explains the currency movements. With the second wave having been more severe than the central bank was anticipating and growth next year lower as a result, more support may be needed in the recovery phase but that won’t be for some time yet.

 

No deal risks grow as crunch Brexit talks didn’t go to plan

Wednesday evening’s dinner between Boris Johnson and Ursula von der Leyen wasn’t exactly the game-changing moment we all hoped for, with the two leaders stressing the differences that remain while urging negotiators to continue working towards a deal. It just seems empty words at this point; the only hope being that issues were worked on in private that could unlock talks in the coming days on certain areas.

A firm decision is now expected Sunday and while time is running out, so many deadlines have been missed at this stage, it’s hard to take that overly seriously. The firm decision may well be to persevere until Wednesday when leaders will assess the feasibility of more talks. And so on and so on.

The European Commission today appears to be proposing an effective extension to the transition on certain areas, including fishing. Whether this is something the UK will go for, having imposed a strict legally binding deadline for talks to begin with in order to avoid a no-deal scenario, isn’t clear. It won’t be politically appealing but then, neither will no deal.

The pound is coming under renewed pressure following the lack of a breakthrough yesterday evening. It’s fallen around three-quarters of a percent so far today, as traders start to blink in the face of a possible no deal. Again, I see little chance of this happening but at the same time, the markets are not sufficiently reflecting the downside risks, in my view. More pain could come before a deal is reached.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam