Mounting Concerns Over UK’s Proposed Internal Markets Bill Sets Off Risk Aversion
There is mounting concern over the UK government’s decision to create a new Internal Markets law, in the middle of this government’s talks between the EU and the UK.
The meeting is to hold this Thursday afternoon as the EU seeks explanations of how a proposed internal market bill will affect the Northern Ireland protocols as contained in the existing Brexit Withdrawal Agreement.
Under the existing agreement, Northern Ireland will be the only part of the UK to remain in the EU Customs Union. However, there are feelers that the UK’s plan is direct retaliation against the EU’s plan to stop the shipment of goods between Great Britain and Northern Ireland.
Northern Ireland Secretary Brandon Lewis admits that the UK’s move would amount to a violation of international law but quickly downplayed the implications by insinuating that the UK could use precedents to reconsider its international obligations as circumstances changed.
Taoiseach (Irish PM) Micheál Martin has criticized the proposed UK move, saying that he was no longer optimistic of a deal between the UK and EU. He added that “trust has been eroded”, as he admitted that Ireland was preparing for a “no-deal” Brexit situation.
The UK’s move is also stoking anger outside of the UK and EU. US House of Reps Speaker Nancy Pelosi has warned that there will be “no chance” of any trade deal between the US and the UK if the Brexit Law is breached. Pelosi has asked the UK to respect the Northern Ireland Protocol signed with the EU.
Why Is the Internal Markets Bill Creating Such Controversy?
The primary concern is that the bill would effectively damage the Northern Ireland protocol that the UK signed to as part of the Brexit Withdrawal Agreement. The protocol requires the UK to officially notify the EU if it intends to provide state aid that could affect businesses in Northern Ireland.
The Internal Market Bill would violate provisions of the protocol. It allows the UK minister overseeing Northern Ireland affairs (i.e. the Northern Ireland Secretary) powers to modify the rules around state aid. It would also allow the Northern Ireland Secretary to interpret article 10 without recourse to any legislative acts in the EU, which effectively makes the UK unaccountable to the European Court of Justice to handle matters regarding any state aid or subsidy that violates this article.
This bill would also mean that no individual would be able to challenge any decisions by the UK regarding the bill, which violates article 4 and article 10 of the Brexit Withdrawal Agreement.
This could have far-reaching implications as to whether the UK could be trusted to respect agreements, even as it seeks trade deals with the US, Japan, China and several African countries. There are also fears that this sets a dangerous precedent for the world at large, as it could empower parties in trade deals to walk away from agreements without fear of any form of repercussions.
The markets are responding to the situation with some level of risk aversion. The Swiss Franc and Japanese Yen are trading higher on several pairs. Gold is also significantly higher on the day.
Outlook for USDCHF
The USDCHF is down 0.7% as the flight to safety follow the recent developments on the Brexit front. This takes the pair back into the channel, and on the path towards the 0.90479 support. An evolving saucer pattern can also be visualized on the daily chart of the pair.
A breakdown of this level, 0.89953 becomes the next logical target as price aims for the opposing channel border. This move would also invalidate the saucer pattern.
On the flip side, a bounce off 0.90479 brings 0.91533 back into focus. This move would validate the saucer pattern and position the pair for a breakout from the lid of the saucer. This break above the top would target 0.92264 initially. The outcome of today’s meeting will indicate whether more risk aversion is expected or not. This could decide how the USDCHF reacts, heading into the weekend.