Irish Border Remains The Key Issue As Brexit Negotiations Trundle On

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Brexit Back In Focus

As we head through the summer, talk of the ongoing Brexit negotiations is growing increasingly prevalent and uncertainty is rising. Recent developments within the UK political space, with UK PM May suffering key resignations within the cabinet as well as threats of a leadership challenge, are causing the market concern for the outcome of the UK’s negotiations with Brussels. Once such area which is particularly troubling is the issue of the Irish border.

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Along the course of the negotiations so far, the issue of the Irish border has consistently presented a challenge and prompted fears that the UK will be unable to agree on a position which allows it to move forward within the negotiations. Indeed, in recent days, Dublin threatened that if a deal is not reached, UK planes will not be permitted to fly over Irish airspace. While this might turn out to be empty rhetoric, it highlights how important an issue this is to the Irish.

irish Brexit

Two Deals To Be Done

It is important to remember here that there are actually two deals in focus here: the first is the deal regarding the future trading relationship between the UK and the EU and the second is the withdrawal agreement regarding the UK exiting the EU.

The EU has been extremely clear in its opposition to the UK’s latest Brexit proposal though it looks as though Brussels understands that no real progress is likely to be made on the trade deal until March 2019. With this in mind, it is likely to continue to be reluctant to engage over trade while the UK remains so volatile in these negotiations. As such, the focus is likely to shift to getting the withdrawal agreement tied down before the UK leaves next year.

Withdrawal Agreement In Peril

In terms of the withdrawal agreement, the major issue continues to be that of the Irish border. The so-called “Irish backstop”, the situation for Northern Ireland if the UK – EU talks fail to produce a trade agreement is highly contentious. The EU proposes that Northern Ireland would stay within the single market for goods and a customs union. However, the UK government is worried that this will lead to regulatory barriers inside the UK as well as weaken the political environment in Northern Ireland. The British government instead favors a situation where the UK as a whole remains in a customs union until the “facilitated customs agreement” it proposed becomes workable.

forex Brexit uk ireland

EU Potentially Willing To Compromise

The EU has shown some willingness to compromise on the issue saying that if regulatory barriers do emerge between Northern Ireland and the remainder of the UK, it would make an effort to “de-dramatize” border checks. For example, this could include having red and green customs lanes at the border to keep traffic flowing, an idea proposed by the Northern Irish Civil Service. There have also been suggestions for any checks, especially agricultural inspections, to be done at production locations instead of at the border.

Legal Issues Remain

If there is a compromise to be made, it looks like it will most likely be along these lines, though the matter of passing such proposals through parliament is still a big issue. Although most MPs would likely agree that this would be the least of the “worst case” scenarios to help solve the issue, it might be deemed too much of a risk to the peace process in Northern Ireland. It is also worth noting that there are legal issues too. Following the ERG’s successful amendment, a hard border is prevented by law from being created in the Irish sea, so in order to pass any backstop deal, a change in legislation might be required.

Market Reaction

As uncertainty regarding the negotiations continues to build, the market has been building it short exposure, reflecting the lack of confidence in the government’s ability to secure a deal.

market reaction

Technical Perspective

technical perspective

GBPUSD continues to grind lower, now sitting just above the 50% retracement from 2016 lows at 1.2899. This level has been untested since GBPUSD broke out to the topside last year and should be a key pivot in the course of medium-term price action.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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