GBP/USD and EUR/USD: Brexit negotiations will continue today, and many expect the UK and the EU to finally reach a compromise.

Negotiations on a post-Brexit trade deal will continue today, and many expect that the UK and the EU will finally reach a compromise to one of the main issues - access to UK fishing waters. However, the chance of concluding a deal is 50-50.

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In any case, both parties need to be able to ratify an agreement, because on December 31, the United Kingdom will leave the EU market and customs union.

Last week, rumors arose that a treaty will be struck as the EU is likely to give in to some terms in exchange for the UK joining rules prescribing stricter business regulation. However, these rumors remained only rumors, and fortunately did not affect trading during the Asian session in any way.

It was only when France reiterated that it could veto the trade deal if they didn't like the terms that demand for the British pound declined. Many European leaders believe that it is unacceptable to make concessions to reach an agreement, even if pressure was exerted on the EU negotiating group. Moreover, last week, EU chief negotiator, Michel Barnier, rejected a request from EU officials to see key parts of the agreement before it was drafted. Many expressed outrage over this issue, saying that this was done on purpose, leaving too little time for a thorough study of all the nuances of the agreement.

As a result, pressure continued to increase in the pound, so many traders decided to wait out the situation. The current technical picture of the GBP / USD pair indicates that a breakout in the resistance level of 1.3490 will lead to a strong bullish movement towards 1.3600 and 1.3690, while a breakout in the support level of 1.3290 will push the quote to 1.3190 and 1.3110.

EUR / USD

According to Capital Economics, funds from the EU recovery fund will begin to be distributed in the first half of 2021. However, the differences with Poland and Hungary have not been resolved, and these countries have recently announced that they can block this decision if a compromise is not found. Nonetheless, most likely, the differences within the multi-year draft of the EU budget will be resolved, since Poland and Hungary are simply bargaining for better terms. But until the budget is agreed upon and the new fund goes live, the European Central Bank will have to ensure fiscal sustainability, which suggests that most likely, the European regulator will make changes in its monetary policy.

Therefore, at its meeting this week, the European Central Bank may increase their program by € 500 billion. The next expansion may occur as early as mid-2021, when the consequences of the coronavirus pandemic will become clear, and the problems with it will be solved with the help of the vaccine. It is expected that another € 250 billion will be allocated through PEPP, and all programs will continue to operate until 2022. Thus, the chances of seeing an increase in interest rates will only appear in 2023, since by that time, inflation might have recovered ... It is expected that under the new program, by the end of 2021, the Central Bank will buy bonds for an average of € 100 billion per month.

With regards to economic reports, the latest data on US nonfarm employment was published, and its figures signal the need for additional stimulus. According to the report, the growth in the indicator has slowed very sharply, and it is expected that it will drop further this December. Full consensus on the $ 900 billion economic support program has yet to be reached between Republicans and Democrats, but there is movement in this direction.

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The data indicated that jobs have grown by only 245,000 this November, while experts expected a growth of about 440,000. The unemployment rate itself fell from 6.9% to 6.7%, but this happened only due to the fact that the number of job seekers fell, which suggests that the recent increase of COVID-19 infections have negatively affected the desire of households to look for jobs ...

But according to Minneapolis Fed President, Neel Kashkari, the drop in US unemployment rate this November is deceptive, since the real unemployment rate is about 10%. Kashkari believes the United States will have a very long way to go before the economy fully recovers, and the road will be very intermittent until the vaccine is widely distributed. Moreover, he does not expect a sharp rise in inflation in the near future, but would be happy with a moderate growth.

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As for manufacturing orders in the United States, the figure rose 1% in October, up from its record in the previous month. The report also noted that jobs have increased at a significant pace this November, indicating continued signs of robust growth, as evidenced by the activity reports last week.

All these suggest that growth in the euro will be doubtful this week, especially since the European Central Bank may make significant changes in its monetary policy. A breakout in the resistance level of 1.2175 will bring the pair towards 1.2260 and 12340, but if the quote drops below 1.2110, the euro will collapse to 1.2040 and 1.1980.

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