Difficulties Remain

The UK and EU are now entering the final week ahead of the December 31st Brexit deadline. There has been much talk recently over the prospect of a deal being agreed and the optimism held by both sides. However, despite encouraging sentiments, there are still key divisions which need to be resolved. A major breakthrough was made over the handling of Northern Ireland border issue. However, on other major roadblocks, namely the fisheries issue, the two sides remain divided.

At present, the issue boils down to the UK insisting that as of January 1st it will have total sovereignty over its waters and will retain a larger percentage of the catch in these waters than it does under the current EU fishing quota. The EU, however, is insisting on a longer transition period as well as demand that fishing boats from countries such as France and Spain be allowed to retain significant access to UK waters.

Offers Being Made

In a bid to agree a deal, the UK has reportedly offered the EU a five-year transition period, 65% of the current EU quota still available to EU boats and a joint procedure for agreeing quotas and managing disputes. However, the EU is still unhappy with this given the number of EU countries (such as Ireland, the Netherlands, Denmark and more) which have been able to fish UK waters at a greater level under the current EU terms. With over 60% of the tonnage caught in UK waters going to foreign boats, the repatriation of UK fishing would cause a seismic shift in EU fishing. The EU currently hauls around £600 million worth of fish annually, and the UK is demand at least half of that haul be returned to UK fishing.

Minor GDP Impact

While the overall GDP input from fishing is relatively low for both the UK and EU economies (just 0.02% of GDP in the UK 2019), there is a great deal of symbolism tied up in fishing given that it was used by the UK as a bargaining tool to enter the EU in the first place. Furthermore, it is a strong political tool in the EU. For example, French president Macron is hoping to win among the country’s big fishing regions in the 2022 elections and is unlikely to do so if he concedes over fishing rights.

The UK PM and the EC president have been engaged in consistent talks over recent weeks in a bid to secure a deal and these talks look likely to continue in the coming week as both sides scramble for a deal ahead of the deadline.

Technical Views

EURGBP

Following the rally off the .8816 lows, EURGB is once again stalled at the .9097 level, having found resistance at a retest of the broken bull channel. While price remains below the channel, there is a risk of a further move lower. Above here, however, the .9311 level is the net key resistance to watch.

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