26.11.202015:05 Forex Analysis & Reviews: Trade talks between the EU and the UK are on the verge of collapse. Germany and EU countries extend lockdown until December 20, and Italy asks the ECB to forgive debts

The British pound is not doing as well as it did earlier this week after news broke that EU chief negotiator Michel Barnier may withdraw from negotiations on a trade agreement. Such news has brought down optimism among market participants, who expect that one of the parties will still make concessions and the agreement will be signed. However, every time traders prepare to break through major resistance at the base of the 34th figure, something goes wrong. Yesterday, the President of the European Commission said that there is no progress.

Thus, Barnier warned his British counterpart that he could withdraw from negotiations on a trade agreement if the UK does not find the courage to significantly change its position on the main important issues that the parties have not been able to resolve for half a year. And although British Finance Minister Rishi Sunak in today's interview once again repeated the position of the British government that they will not agree on any cost, the British pound rolled back from its highs, rushing to the lower border of the side channel 1.3305.

There is still time, and next week may be a key one, so we can hardly expect further growth of the British pound without sufficient reasons. If the parties do not come to a trade agreement next week, the pressure on the GBPUSD pair will only increase.

And concluding the topic of the UK, it is necessary to pay tribute to the work done by the Finance Minister, who is struggling to avoid a serious economic shock to the UK due to the coronavirus pandemic. It is already clear that the economic downturn that is expected at the end of this year due to COVID-19 will be much smaller than other recessions that the country has experienced recently.

On the chart, you can see the last three economic crises that have been much more difficult for the UK. The fact that the economy recovered at a fairly rapid pace is due to the government and the Bank of England, which managed to keep the economy from collapsing with large-scale retaliatory measures. And despite the growing deficit and debt burden, the Finance Minister already has a plan for these deficits to fall in the coming years, when emergency measures to support the economy are curtailed.

Now a little bit about the coronavirus pandemic. At the beginning of the week, I expected that EU countries would follow the example of the UK and go to the removal of quarantine measures introduced in November this year. However, this did not happen. German Chancellor Angela Merkel called on Germans today to do more to fight the coronavirus, as if this does not happen, sooner or later everything will lead to the worst-case scenario of overloading the health system.

Speaking in Parliament, Merkel said that the partial lockdown of the economy is extended until at least December 20 this year, and several other restrictions will remain until the beginning of January 2021. Merkel also expressed hope that a coronavirus vaccine will be available by Christmas. Merkel's decision was also joined by several European countries, which agreed to tighten restrictions on meetings, but at the same time kept schools and most businesses open, which will limit the impact on the economy. It is expected that if the rate of spread of the coronavirus pandemic does not go down, the restrictions may be extended until March next year.

According to the latest statistics, more than 60 million people have been infected with the coronavirus. Germany also has a record daily jump in new cases. At that time, the death rate from COVID-19 reached a seven-month high.

And in conclusion, I would like to tell you about another Italian performance. A senior Italian government official suggested that the European Central Bank should consider paying off or holding on to the burden of Italian public debt. Deputy Foreign Minister Riccardo Fraccaro believes that the European regulator should keep forever the debt obligations that it bought from Italy to help it during the coronavirus crisis. In his opinion, the ECB's monetary policy should support the fiscal policy of the EU member states in all possible ways. One of them is Fraccaro, a close aide to Prime Minister Giuseppe Conte, who considers the cancellation of sovereign debt bonds purchased during the pandemic, or a permanent extension of their maturity.

As a joke, when ECB President Christine Lagarde was asked about this in the European Parliament last week, she replied that she had never even asked herself such a question, since such measures are completely contrary to European law, and it would be a banal violation of the law. Italian Finance Minister Roberto Gualtieri also rejected the idea.

Let me remind you that Italian debt may grow to 160% of GDP by the end of this year. But to be fair, we should not forget that even in pre-crisis times, when there was no particularly sharp need to increase spending and increase budget deficits, Italian debt rarely fell below 130%. Now it is clear why politicians of this level are visited by such crazy ideas as "understand and forgive".

As for the technical picture of the EURUSD pair, it remained unchanged. Bulls are still looking towards the strengthening of the European currency and risky assets, however, they need to get above the level of 1.1930. A break in this range will lead to a new wave of large purchases with an exit to the base of the 20th figure, which is the psychological goal of the bulls at the end of this year. A break of 1.2008 will open a direct road to the highs of 1.2060 and 1.2110. It will be possible to talk about the return of pressure on risky assets after the return of the trading instrument under the support range of 1.1880, which the bulls actively defended yesterday. This scenario will quickly push the EURUSD down to a minimum of 1.1840 and then lead to an update of weekly lows near the base of the 18th figure. However, given the fact that today is Thanksgiving Day in the US, it is unlikely that volatility will be so high.

As for today's fundamental indicators, only the report on the consumer confidence index in Germany attracted attention. Although the data is forward-looking, nothing good is ahead of us. The euro declined on this background, as it is likely that the minutes of the European Central Bank from the October meeting will indicate the expansion of the economic stimulus program in December.

According to data, consumer sentiment in Germany will worsen in December due to a loss of optimism amid a partial lockdown. A report by the GfK research group indicated that the leading consumer confidence index fell to -6.7 points against the November value of -3.2 points. Economists had predicted that the December indicator would be -5.5 points.