GBP On the Up

GBP has been well bid across the Asian session and early European session today in response to news of UK PM Sunak’s Brexit breakthrough. The PM and EC president Ursula von der Leyen yesterday agreed to a new set of trade terms for Northern Ireland which, both sides hope, will finally settle the issue of how to treat Northern Ireland in such a way that all parties are happy.

New Deal

The Windsor Framework essentially outlines plans to move goods between mainland Britain and Northern Ireland via a two lane system. In this system, goods moving via the green lane are to be used in Northern Ireland only and won’t be subject to customs checks. However goods moving via the red lane which are bound for the Republic of Ireland and the rest of the EU will be subject to checks.

DUP The Key

The deal marks the first framework which both UK and EU leaders have been satisfied with and the hope now is that the deal will receive backing in UK parliament and be implemented. One key aspect of this, however, is the deal being backed by unionists in Northern Ireland. The DUP walked out of the power sharing Stormont government in protests at the current Northern Ireland protocol, calling for reforms to be made. The big hope therefore is that these new terms will be accepted by the DUP who would then return to power-sharing in Northern Ireland.

Traders Optimistic but Risks Remain

The reaction in GBP suggests traders are optimistic this can happen. Initial reports, however, suggest that the DUP will need some time to consider the deal and that while progress has been made, the terms might still fall short of the DUP’s own agenda. If this is the case, then GBP will be vulnerable to a sharp downside correction.

Technical Views

GBPJPY

The rally off the 156.62 lows has seen the market breaking out above several key levels. The pair is now attempting to breakout above the bear channel from last year’s highs and above the 164.56 level. With momentum studies bullish and the retail market heavily short, the focus on a test of 168.92 next.