Both the European Union and the UK are preparing to enter intensive phase of negotiations to overcome the long-standing dispute over post-Brexit trade relations. They want to resolve the problematic points that prevent the negotiated agreement between the parties from functioning properly.
Representatives of both sides announced that the EU had agreed to use the current UK database to track goods moving from the UK to Northern Ireland. This is a sufficient sign of progress in the long-running dispute over post-Brexit trade rules. Other unresolved issues include disagreement over who should hear the resulting disputes as the UK is demanding that the European Court of Justice be completely stripped of its role in resolving Brexit disputes in the region. However, that is something the EU is clearly not prepared to do under any circumstances. Nevertheless, both sides hope to reach an agreement by the end of next month, ahead of the April 1998 anniversary of the Belfast Peace Accord.
Apart from technical issues, any agreement would have to be approved by stakeholders in the UK's Conservative Party, as well as in Northern Ireland, where the Democratic Party is strongly opposed to the protocol. If a new Northern Ireland executive is not formed by January 19, new elections must be scheduled for April 13.
The dispute stems from the original Brexit deal, when both sides agreed to avoid a land border on the island of Ireland. This arrangement effectively established a border in the Irish Sea and allowed Northern Ireland to remain within the bloc's single market and customs agreements. The UK has so far failed to honor some of these agreements.
This kind of news is unlikely to affect the short-term market direction in any way, especially after the release of the latest US inflation data. However, a positive and final decision on the Brexit deal will help pound rally in the medium term.
So far, attempts to get out of the horizontal channel in GBP/USD have been unsuccessful, so buyers need to stay above 1.2160 to maintain their advantage. Only the breakdown of 1.2225 will push the pair to 1.2300 and then bring it to 1.2350. Meanwhile, sellers taking control of 1.2160 will lead to a decline to 1.2090.
In EUR/USD, the chance of further growth remains, however, buyers need to stay above 1.0810 as that will spur a rise in the pair to 1.0863 and 1.0895. On the other hand, a return of pressure around 1.0810 will push the quote down to 1.0765 and 1.0725, or even towards 1.0685.
