GBPUSD traded in a tight range from the London open to the 13:30 US scheduled news.
5 minutes after the US PCE data, came word out of the EU that the European Commission had told members to be ready for a meeting on Thursday morning if an EU/UK Trade Deal is agreed today.
By 15:01 we had news from a #10 Downing St, source that a deal was done and simultaneously from an EU source close to EU commission President von der Leyen that “we’re reaching the final phase”.
Unfortunately for the London session traders, no deal had been announced by the close, so cable has slightly come off its high today. 1.3550 appears to be the resistance level until we get confirmation of a signature from both sides and any delay would no doubt cause the pound to come off a bit more. If there is a negative surprise going against the current sentiment, that would be a catalyst to test a lot lower. Holding overnight is probably not advisable at the best of times and definitely not tonight. A senior EU diplomat said that the deal is expected to be finalized by 7pm GMT, so that would be a great time to check in and see if the markets were satisfied or disappointed.
The US dollar is being held in the 90-91 zone and weaker on the day due to the positive sentiment with Sterling and the euro, coupled with a lack of clarity on what is happening with the COVID-19 relief/stimulus package. The Fed’s preferred measure of inflation is the PCE reading and that came in worse than expected. The volatility index is dropping as we approach the holidays and sideways markets are the real order of the day. US10 year yields were a beneficiary of the stable dollar and the risk-on sentiment and the long bond ETF TLT was down -1%. However, long-term picture would be that the yields come down as interest rates come down.
It would seem the market is indicating that a positive result for the UK/EU Trade Deal would be anything but a ‘no deal’ and that the pound would be a bullish bet versus the euro.
EUR/GBP pair has been trading in the middle of a range between the 0.8850 and 0.9250 levels for 6 months now and is currently hovering above the 200-day sma support and 0.9000 price level. If the pound were to strengthen against the euro, the first major level for traders would be 0.8400 where the pair found major support in 2016/2017 and 2019/2020.
The FTSE also benefitted today from positive sentiment and bullish plays in the energy sector and oil complex. Brent Oil was up 3.0% and WTI up 3.1% at the time of writing after the US EIA Weekly Crude Stocks showed a draw across Crude, Cushing, Gasoline, and Distillates. Gasoline and Distillate had been expected to be built, so this was positive for the Oil prices going forward.
The USDCAD was a sell on the news but had been weak since yesterday’s US open. This week saw the USDCAD run into technical resistance at the previous market structure and although we’re still in Monday’s range, it is looking likely that Monday was a high price for the USDCAD this week, even though the Canadian GDP data came in slightly better than expected, though still down from the previous reading.