The deal is all but done on the Irish border issue and the door is open for phase two of Brexit talks witht he EU
As expected, Theresa May and her cronies have been working late into the night. We’ve got a deal of sorts, which from the reviewing the headlines, looks like there’s been half a climb down by the DUP.
Here’s the main comments from all involved;
- Says the Brexit deal is a significant improvement
- Guarantee no hard border in Ireland
- The divroce settlement is fair to the UK tax payer
- UK courts shall have due regard to decisions relevant to citizens rights made by the ECJ after UK exit
- Significant progress has beenb made
- Is ready to start work on phase 2 of negotiations
- Today’s Brexit result is a compromise
- EU recommends that sufficient progress has been made on the divorce settlement
- EU leaders will make the final decision on progress made
- ECJ will still becompetent for guaranteeing EU citizens rights in UK
- Deal is very good for everyone in Ireland
- Agreement puts a floor on what is possible in trade talks
- Britain will have no greater ally than Ireland in phase 2 talks
- There are still matters on the border deal we would have liked to clarify but we ran out of time
- We have clear confirmation that the whole of the UK is leaving the customs union and single market
- More work needed on regulatory alignment
- There will be a major debate with UK cabinaet on alignment
- Still may vote against final Brexit deal
- Deal today is a personal success for May but the most difficult challenge is ahead
- Will ask EU leaders to start transition talks immediately
As ever, we have the bells but not the whistles so the finer details of the deal will be scrutinised over the coming days and I suspect there will be some negatives found by the press and Brexit watchers. The divorce deal is said to have an agreement in place in something around the €40-60bn mark, which is about what’s been expected. I’ve highligted a couple of the points above because they are still relevant for things moving forward and do present some price risk. The whole thing still has to be voted through by the member states, and there’s still some details to be worked out by the UK internally. The issue on the EU/UK courts jurisdiction still looks like it will rumble on.
What happens now?
Off to phase two we go and the big risk here is that everybody rides this wave of euporia into the next round of talks and then gets poleaxed when we start to hit more snags. Just because the UK is in phase two it doesn’t mean it will be a walk in the park and the trade deals will come thick and fast. There’s a hell of a lot left to be done and a hell of a lot the EU could put their foot down on and very difficult. In fact, I’m very very worried about Juncker’s change in tone recently. He’s gone from being very harsh about the UK’s Brexit progress and it’s possible outcome, to almost being friendly about it. He’s more than aware that this phase one pales into insignificance compared to what’s to come, and that the EU could well put the UK over a barrel on trade talks. There’s more than a few countries who are eyeing taking business from the UK, most notoriously from the financial sector, and that’s going to be one hell of a fight.
For the pound, we need to wacth the price action carefully now. We could remain bid for a while longer on the positivity but any failure to break the 1.3520 highs could mean a decent top is put in place. As I type, we’re having another test of those highs. Moving forward, the attention turns to the US and the NFP, and also to the FOMC and BOE meetings next week. There’s no action expected from the BOE so the Fed will take preference.
For now, I’m leaning towards looking for signs of a top forming in the pound. We’ve got over one Brexit hurdle and the next one is much bigger. As you know, I was bullish coming into December as I was pretty much expecting the UK to get a deal done by the summit but now we’re right back at the start, so I’m shifting back to neutral. I’m still holding some of my lucky longs but I’ll turn it in at the first sign of GBPUSD forming a proper top.
As I mentioned, we still may get some further jerky moves as the analysis of the deal is done, there’s still the ratification and internal discussions to be had but barring any mishaps there, I think we’ll see things settle down somewhat. However, the headline risk remains as phase two is only just another beginning for Brexit.
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