Midnight Deadline For Brexit Deal
Today marks an important day for Brexit negotiations. The EU has given the UK a midnight deadline for agreeing a deal ahead of the EU summit which begins tomorrow. The plan is, if the UK and EU can agree an acceptable deal, the EU will then officially approve the deal at the two-day summit, beginning tomorrow. This would mean that Johnson was able to secure a deal ahead of the 19th October which is the deadline laid out in the Benn Bill meaning that the UK would not have to request an extension to Article 50 and would leave the EU on October 31st with a deal.
On Tuesday, media sources were reporting that deal was imminent amidst talk that the UK had agreed to concessions over the Irish backstop issues. Talks continued late last night and the UK PM is due to brief parliament today on the state of negotiations. Michael Barnier, the EU’s chief negotiator, is also due to brief EU leaders on these talks ahead of tomorrow’s summit.
The details of the deal on the table between the EU and the UK will be of paramount importance given the fierce division over the contentious Irish backstop issue. Johnson still needs parliament to approve the deal following EU ratification. This will be easier said than done given that Johnson faces staunch opposition from within his own government, namely Conservative Brexiteers and the DUP who make up the coalition government with the Conservative party.
On Tuesday evening, Tory backbenchers and members of the DUP held meetings with government members, including the PM, to discuss the situation. Following those meetings, which ran to nearly two hours, the DUP issues a statement in which it said "We respect the fact negotiations are ongoing therefore cannot give a detailed commentary but it would be fair to indicate gaps remain and further work is required."
Irish Border Issue Still Key
The issue of how to handle the Northern Irish border has plagued negotiations from the very beginning. The EU has consistently said that it wants Northern Ireland to remain in the single customs union as it is on the island of Ireland. The UK government, meanwhile, continues to insist that Northern Ireland remain in UK customs territory and leave the single customs union. However, due to the delicate political situation there, the UK wants to ensure that a hard border will not return. The EU has so far been unwilling to let Northern Ireland leave the EU at least not without a hard border in place, for customs purposes. Over recent days it has been suggested that a compromise has been found potentially along the lines of Northern Ireland remaining in the customs for a specified period of time.
If the EU rejects the deal or UK parliament refuses to support it, then the Benn Bill (passed by parliament ahead of the proroguing in September) calls for the UK PM to request an extension to Article 50 until January 31st 2020. However, Johnson remains adamant that he will press ahead with a no-deal Brexit on October 31st. It is not yet clear if MPs would launch a vote of no confidence or a legal challenge in a bid to stop such a move. In any case, if this deal is rejected by the EU or parliament, uncertainty will increase exponentially which will weigh heavily on the British Pound.
Technical & Trade Views
EURGBP ( Bearish while.8810 holds)
From a technical and trading perspective. The reversal lower in EURGBP came just ahead of the monthly R1 at .9081. In line with longer-term VWAP, this move is likely to extend lower. However momentum studies flag the risk of a short term correction higher and I will be watching retracements into the .8810 level for short opportunities
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!