Deal Finally Agreed

Following months of what seemed, at times, hopeless effort, the UK and the EU have now confirmed a trade deal. The deal outlines trading terms between the two economies for once the UK leaves the EU on December 31st. The deal, which received unanimous backing from EU leaders will now be put to a vote in the UK House of Commons on Wednesday where it is expected to be passed and subsequently become law on January 1st.

Even in the week leading up to the deal being agreed, market watchers and political commentators, as well as politicians themselves, were highly uncertain over whether a deal could be agree given the differences which still remained. With a deal now in places, the UK has avoided the catastrophic negative impact on the UK economy which the BOE has recently warned would likely have occurred in the event of a no deal Brexit.

Some Details Yet To Be Clarified

The deal itself is a more than 1000 page document which, even at that size, is still incomplete. Some areas are not covered and some areas contain standstill clauses (essentially outlining that both parties agree to add details at a later date) and while the trade terms mean that trade between the two economies will alter dramatically in some areas, the worst case scenario has been avoided.

Some of the key elements of the deal include:

  • UK can still export to EU without tariffs or quotas
  • Transport links will be retained though new visa rules will come into play
  • Level playing field agreements agreeing equivalence between UK and EU firms
  • 25% of EU fishing rights will be transferred back to UK fishing over a five and a half year period

Criticisms Of The Deal

Despite the compromises and agreements in place, there has been a great deal of criticism of the deal, especially in the UK. The deal has broadly neglected the needs of the UK services sector, which accounts for around 80% of the UK economy and still contains plenty of vagaries and many areas (such as taxation and financial services) where details are yet to be agreed. Furthermore, UK citizens will now lose access to a wide range of EU programmes and initiatives while travelling to or moving to the EU will become far more complicated.

Technical Views

EURGBP

EUR is gaining against the pound on the back of the deal as uncertainty around the transition and the impact of deal looks to be taking more of a toll on UK assets. EURGBP is now once again testing the .9097 level as it attempts to breakout. Above there, the next resistance is the retest of the broken bull channel and the .9311 level above it. To the downside, .8861 remains the next key support.

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