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EURUSD made a high around 1.1795 in the U.S. session Monday, surged almost +0.67% on hopes of a Brexit deal despite British PM Johnson’s ‘AU’ trade deal warning and mini-lockdown 2.0 (CVOVID-19) in various member states (localized). EUR also gained on broad weakness in the US dollar amid renewed hopes of CARES Act 2.0 (fiscal stimulus) and mixed Chinese economic data (slightly below estimate GDP at +4.9%, but above estimate industrial production and retail sales).
For EUR, all focus now on Brexit and COVID lockdown 2.0 across various EU member states as the chilly winter and festival season approaches. On Brexit suspense, although it seems that the U.K. is showing the door to the EU, the EU is now almost blinking and scrambling for ‘intensified talks on all subjects based on legal texts’.
As per reports, several ‘potential turning points’ were achieved on Monday in the meeting between the EU and the U.K. There was some progress on citizens’ rights on both sides, as well as on the customs arrangements in Northern Ireland. The EU officials reportedly stressed that they understood Britain’s sensitivities for sovereignty and that they would not insist on a physical EU customs office in Belfast. European Commission executive vice-president Sefcovic and British Cabinet Secretary Gove also agreed on an ‘intensified schedule of meetings’ in the coming days.
But Gove also pointed out:
“Further trade negotiation with the EU would be meaningless and are in effect ended because the EU’s proposals are not consistent with the UK's sovereign status---there had to be a fundamental change in the EU's approach if a deal was to be made. EU’s negotiators refused to discuss legal texts in any area and insisted on full, permanent access to British fishing (sea) waters, which Britain refused.
Although the joint committee meeting showed a constructive EU approach, the EU must change its approach to Brexit talks. The U.K. has been clear that Oct 15 was the target date. And as things stand deal will not happen before the end of the transition. But my preference is reaching a Brexit deal, although we are increasingly well prepared for an Australian style deal.
There’s no point in negotiations proceeding as long as the EU sticks with its position. This country should get ready for 1 January 2021 for arrangements that are more like Australia’s – based on simple principles of global free trade.”
The No-10 (Downing Street-British PMO) also clarified that Britain will only reach a post-Brexit trade agreement with the EU if it is possible to do so by the end of the year and will not be willing to extend talks into 2021: “We have been repeatedly clear that any agreement needs to be in place before the end of the transition period, and we will not be back to negotiate further next year. We must provide certainty to our citizens and businesses, and endless prolonged negotiations won’t achieve this”.
However, UK Housing Secretary Jenrick noted: “The door is still ajar on the Brexit deal if the EU wants to come back to us, but the EU hasn’t shown the flexibility. Unless the EU comes back to us, we will leave without a deal. We don't want a no-deal but we need to move forward”.
The EU Vice President for International Relations Sefcovic said: Any agreement between the EU and the U.K. must work for both sides. The EU wants to work until the last minute with the U.K. to reach an agreement ahead of Britain's full exit from the bloc at the end of 2020.
Meanwhile, EU's chief negotiator Michel Barnier tweeted: I just spoke to @DavidGHFrost. As stated by President @vonderleyen on Friday, I confirmed that the EU remains available to intensify talks in London this week, on all subjects, and based on legal texts. We now wait for the UK’s reaction.
Barnier’s comments came after a phone call today with the UK’s chief negotiator Frost. Subsequently, an official statement by the British PMO said: “The UK has noted the EU’s proposal to genuinely intensify talks, which is what would be expected at this stage in a negotiation. However, the UK continues to believe there is no basis to resume talks unless there is a fundamental change of approach from the EU. This means an EU approach consistent with trying to find an agreement between sovereign equals and with the acceptance that movement needs to come from the EU side as well as the UK. The two teams agreed to remain in close touch.”
Overall, EURUSD stumbled -0.90% in the last week on Brexit uncertainty and the concern of COVID-19 lockdown 2.0 (localized/targeted), which may further hamper the already fragile economic recovery. Germany announced limits on the number of people at private gatherings and a curfew for bars and restaurants in potential hotspots, while France announced that a night curfew would be imposed in Paris and eight other cities. Northern Ireland said it would enter a four-week lockdown on Friday, closing schools, pubs, and restaurants as part of new restrictions.
It looks like the EU is more interested to prolong the Brexit deal talks through 2021, while the U.K. is adamant to conclude the same by Dec’20. The EU is blinking first and on the ‘back foot’ against Johnson’s ‘pace bowling’. The market is still confident that both sides will make a deal just in time by next Nov summit as a no-deal Brexit will be negative for both U.K. and EU, especially export heavy Germany, whatever may be the political narrative.
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