After Brexit, EU eyes China deal

The euro has posted slight gains in the Tuesday session. Currently, EUR/USD is trading at 1.2244, up 0.28% on the day. It’s a very light data calendar, with one tier-2 US event and no eurozone releases. That leaves markets vulnerable to the mercy of headline-driven reactions in a very illiquid period of the year for financial markets. However, it has been a quiet start to the week, with the US dollar down ever so slightly.

EU-China investment deal

The year 2020 has been most challenging and difficult, and the Brexit agreement last week has been a small bright spot. The European Union and the UK have finally reached an agreement on their new trade relationship in the post-Brexit era. At the end of an exhausting process that has lasted over four years, it would not be an exaggeration to state that the sides have finally agreed to the terms of a divorce. The negotiations went down to the wire, and right until the end, it was unclear if the UK would depart the bloc without a deal in place. In this context, both London and Brussels have focussed on deepening trade links with other suitors; the UK is hoping to sign a free trade agreement with the US, while Europe signed such a deal with Japan in 2019.

The EU has also reached out to China, the world’s second-largest economy. The gigantic Chinese market has become even more appealing to the Europeans, given the trade frictions with the Trump administration. With President-elect Biden expected to forge closer relations with China, the EU is in a race to make a deal with China that will provide European businesses with preferential treatment compared to US companies. To this end, the EU is on the verge of signing an investment deal with China. An accord would open up China to greater investment by EU companies and would provide momentum for the sides to move towards establishing a free trade agreement. If a deal is announced this week, it would shake up the sleepy financial markets and would likely provide a boost to the euro.

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EUR/USD Technical

• EUR/USD faces weak resistance at 1.2283. Above, there is resistance at 1.2374
• There is support at 1.2115, followed by a support line at 1.2038
• The pair crossed above the 10-day MA line on Monday, which is a sign of an uptrend

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